The Different Ways We Make Investments

A lot of us consider investments as buying shares, putting away money in a fixed deposit account, using up money to start a business and buying land.

image: humanipo.com

Today, I will be opening your mind to the different ways we invest. Investment is more than just putting away money in a system that is expected to grow it for us. There are many other ways we invest and they become very obvious when we get a hold of the true definition of investment.

Investment is simply delaying consumption. You might consider it a too simplistic definition, but that is the true definition. Whenever you get your salary and decided to not consume everything you are basically investing. Now if you put the money under your bed rather than in a high yield savings account we can say you are making a bad investment. All the same, regardless of how you preserve the money or attempt to grow it, as long as you do not spend it on your immediate needs you are investing.

Let's talk about the less obvious ways we invest. When you turned down an opportunity to work full-time after your secondary school education but went on instead to do a university degree, you delayed consumption (the usual result of getting a salary) to acquire the human capital you hope will get you more money to make up for the opportunities you rejected while schooling. So every time you spend on educating yourself, whether through a formal system or just by buying and reading lots of books, you are investing. 

Also whenever a man quits his job to start a business, he gives up a steady monthly income for no income at the start and even spends his life savings and (in some cases) borrowed money to build something he hopes will more than make up for the present sacrifices. He is investing. Whether he succeeds or fails is another matter, but it doesn't change the fact that he invested. You can say he made a good investment if he succeeds and that he made a bad investment if he fails.

In summary, most investments can be classified under the following broad categories

1. Financial investment. Putting money in a system that promises to grow it for you or at least preserve it for future use (as is the case of putting it a secured case under your bed).
2. Growing your human capital. This is giving up immediate earning opportunities, more pleasant use of your money and comfort to increase your education, your ability to create more valuable things.
3. Entrepreneurship. I like to consider this as the ultimate investment. It is putting your money, time, knowledge and efforts into what you believe will grow big someday and more than compensate for the initial trouble. 

So now you see that even though you don't have any brokerage account holding shares of companies or a bond account or even a savings account, you still engage in investment. As long as you don't spend all the money you earn on immediate needs but have some kept away for future need you are an investor. And even when you don't earn any income and it is because of your decision to complete your studies or further it, you are also making an investment.