Income, Saving, and Investing

We
Are young but getting old before our time
--Joe Jackson

Income is the stream of economic resources generated from production. A primary source of income is a job. Pay from a job is called a wage. Wage-related income constitutes fruits of your labor. After the government takes some via taxes, the remainder is yours to consume.

But you don't have to consume it all. Although consumption raises your standard of living today, it leaves little for tomorrow. Setting some of your income aside (i.e., saving) enables you to keep some resources squirreled away for a rainy day.

Some of those savings could be invested. Investing commits resources today toward projects with potential to generate additional resources in the future. Saving used for investment purposes is sometimes called capital. Capital investment is the way that prosperity improves over time, because capital is transformed into machines and other tools (both tangible and intangible) that improve productivity and create more wealth. It is that increase in wealth that elevates standard of living.

If you choose to consume all of your income then you will live better in the here and now. However, you may be jeopardizing your future standard of living if you have not saved or invested. Because the future is uncertain, your future income may be lower than expected and your future expenses may be higher than expected. In such cases, savings would have come in handy. Moreover, without savings there can be no investment capital to fund productivity improvements that raise standard of living not just for you--but for the world.

The sooner you begin saving and investing a portion of your income, the better.