The Elements of Investing

Chapter 1. SAVE

Save. The amount of capital you start with is not nearly as important as organizing your life to save regularly and to start as early as possible. As the sign in one bank read:

Little by little you can safely stock up a small reserve here, but not until you start.

The fast way to affluence is simple: Reduce your expenses well below your income—and Shazam!—you are affluent because your income exceeds your outgo. You have "more"—more than enough. It makes no difference whether you are a recent college graduate or a multimillionaire. We've all heard stories of the schoolteacher who lived modestly, enjoyed life, and left an estate worth over $1 million—real affluence after a life of careful spending. And we know one important truth: She was a saver.

But it can also go the other way. A man with an annual income of more than $10 million—true story—kept running out of money, so he kept going back to the trustees of his family's huge trusts for more. Why? Because he had such an expensive lifestyle—private plane, several large homes, frequent purchases of paintings, lavish entertaining, and on and on. And this man was miserably unhappy.

In David Copperfield, Charles Dickens's character Wilkins Micawber pronounced a now-famous law:

Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

Saving is good for us—for two reasons. One reason for saving ...