Successful Investing Starts With Saving

What's the key to successful investing? That question shows up frequently in my emails, and I always answer the same way: saving.

What's the best way to get started in investing? That's probably the second most frequently asked question I see in my emails. I always answer the same way: saving.

I never hear from most of these emailers again. I guess they were disappointed in my answer. They wanted a hot stock pick or a foolproof investing system. And I guess they simply don't feel the connection between investing and advice on how to save $10.

I can't recall a single email follow-up asking for more detail. Too bad, because my specific saving strategy is exactly the investing strategy these readers were looking for.

Saved Money Is Worth More

In the future, a dollar saved out of then-current income will be worth far more than a dollar earned. A retiree who cuts $100 out of then-current living expenses will be way ahead of the retiree who works a post-retirement job in order to make $100. That's because the earned $100 will be reduced by taxes to far less than $100. That's especially the case if the coming crunch in Social Security and Medicare funding requires substantial hikes in payroll taxes.

But the benefits of saving don't stop there if you link saving in the present with investing right now, as well. That way, every dollar saved now not only lowers the size of the income you think you'll need in retirement, but, through the power of annual compounding, it increases the nest egg you'll have for retirement.