If you want to accomplish your financial goals, then you can use these simple, yet valuable investing principles. A lot of people think that investing your money wisely is a bit complicated. Well, this is not entirely true. While you can choose to make investing more complicated, it is generally not a good idea since there is always a simpler method that you can use as well.
Regardless of whether you are trying to invest for the first time or you have done this for decades, it is possible that you can increase your net worth by using these simple principles. The fact is, there is no need for you to invest a lot. The following are some important principles that can help you in saving and investing your money wisely.
As Soon As You Start Earning, Start Investing Right Away
Keep in mind that the wealth that you accumulate will greatly depend on how soon you can start investing. If you start investing earlier, then your money could grow exponentially over time, even if you’re just starting out with a little investment amount.
Let us try to compare two investors, Sam and John. Both of them have the same investment amounts each month. They also obtain the same average annual return for the amount that they invest. Sam started investing when he was 35 years old and stopped when he reached the age of 65. He invests $200 per month and acquired an average return of 8%. At the end, he received less than $300,000.
On the other hand, John began investing when he was just 25 years old and stopped when he reached the age of 65. Just like Sam, he also invests $200 each month and obtained an average return of 8%. He ends up receiving less than $700,000. Since John started investing 10 years ahead of Sam, he received $400,000 more than what Sam received. This means that John has more money to spend for his retirement. The fact is, the only difference between the two is that John contributed $24,000 more than Sam.
This shows that you should start investing as early as possible. It is wrong to believe that you don’t have enough earnings to invest now, and you will just try to catch up later. If you are going to wait for your bonus or future raise, then you are simply wasting precious time. If you neglect to invest even just a small amount today, then it could likely cost you in the long run. The earlier you begin investing, the more financially secure you will be. Always bear in mind that no one is ever too young to start planning for their future.
But what if you failed to get a head start on investing? Have you run out of time already? Well, the best thing to do is to start diving in so you can get started. The good thing is, most retirement accounts allow you to add contributions so you can catch up. This can help you in saving more for your retirement.
Using Automation Can Keep You Disciplined
It can be easy to procrastinate on your investment and savings, which is why it is important to automate it. This is just a simple strategy, but it has been proven as the best strategy for building your wealth. You could set up automatic deductions from your payroll. Automation is great since it can prevent you from spending the money that you shouldn’t. The best way that you can be successful is to prevent yourself from slipping up. At the same time, you should create strategies that can force you to practice good habits.
You should set up an automatic transfer from your bank account or paycheck to your investment or savings account each month. Setting up automatic deposits can help prevent you from getting tempted to spend it. Most of all, you have already set aside some money before you even see it. With this barrier, you have outsmarted yourself so that you will be able to manage your money wisely. By setting up your financial future on autopilot, your life will be much simpler and at the same time, you can see your wealth start to grow.
Create a Savings Plan for Emergencies and Short-Term Goals
Sometimes you tend to use savings and investments interchangeably, but these are not actually the same. Savings refer to the amount of money that you keep on hand for unforeseen emergencies and short-term planned purchases. For example, you could be planning to buy a car within the next year or two and you have been setting some money aside for it. You can keep it safe if you put your money in a high-yield bank account. This money could be used for your unexpected medical expenses.
One of the things that you need to consider is that the interest rate on a bank account is very low. So, should you invest your money instead of saving it? This is not recommended. Unless you have a large amount of money, you should not invest your savings. This is because it is possible that the value could decrease at the moment that you need it the most. Remember that the goal of your savings is not to increase its value, but to maintain it so that you can use it instantly when you need it.
The amount of your emergency fund should be equal to at least three to six months’ worth of your daily expenses. If you do not have this amount on your emergency fund, then one of your top priorities should be to accumulate this amount. You need to set aside at least ten percent of your gross pay until you already have enough cash to comfortably lean on in case you will lose your work, or you can’t work for some time.
Invest Money for Accomplishing Your Long-term Goals
Investment is in contrast with savings since its main goal is to grow your money. In this way, you will have some cash to spend on your retirement. Investments are also great for smaller goals, in case there is something that you want to accomplish within five years, for instance, taking a vacation or buying a home.
Apparently, if you invest your money in the stock market, then you can probably obtain an average income of 10%. However, even if you only earn an average of 7% return of investment, you can still acquire more than $1 million for your retirement provided that you will set aside at least $400 per month for a total of 40 years.
Hence, it would be wise if you should start setting aside at least 10% to 15% of your gross income so that you will have some money to spend for your retirement. And don’t forget the 10% that you need to set aside for your emergency savings. You should consider these amounts as one of your monthly obligations, just like the bills that you need to pay each month.
If you think that setting aside at least 20% of your gross income for your savings and investment is something that you cannot afford, then you have to analyze your spending. Once you know exactly how you spend your money, then you can discover ways you can save more.
When you have built up a healthy emergency fund, then you can still continue setting aside 20% of your income. You could allocate the whole amount for your investment or you could only invest 15% and set aside the five percent for other things such as for a vacation or for a new car.
Do Not Choose Investment Funds with Higher Fees
Keep in mind that different investment funds have different fees, which is also referred to as the expense ratio. For instance, if your investment fund has an expense ratio of two percent, this means that two percent of your fund’s total assets will be spent on various expenses such as marketing, advertising, management, and administrative costs.
Try to look for a similar investment fund that only charges one percent. You might think that there is only a small difference, yet cost you a lot of savings over time. For instance, if you have invested $100,000 for more than 30 years and you obtained an average 7% return of investment, instead of 6% then you will be able to save up to $200,000. Hence, it is important that you opt for low-cost funds so you can take advantage of higher returns.
These are just some of the pieces of investing advice that you can use for building your wealth. Keep in mind that when building your wealth, it is crucial to start as early as you can and set aside as much as you can for your savings and your investments. Do not be ashamed if you are just starting small. The fact is, setting aside $20 per month is better than nothing. Also, do not stress yourself out, if you have started late. The most important thing is to get yourself motivated to start as soon as you can.
Setting up your accounts for automatic contributions is already a big step in the right direction. Having savings and investments that you can fall back on is something that you can be proud of in the years to come. You’ll be glad that you have enough money to fund your lifestyle.
If you need more tips on how to invest your money wisely, then you can visit Money Mgt. Inc. at https://moneymgtinc.com/ or you can call us at 601.990.2102 or you can also send your message at jmckennon@virtuecm.com.
Recent Comments