Pay Your Savings Bill
Some people borrow to invest. That is one of the worst forms of gambling! The investment has no guarantee of growing or giving an expected return. When you add that to the debt that still must be paid, you have a recipe for disaster!
Does that mean you must wait? Yes, it does, until you have learned the habit of saving.
Do you have a budget that you intend to follow? Will you limit your spending to less than your income? Will you cover your basic needs? Will you avoid debt?
If the answer is “Yes”, then, you have a good chance to start building a good savings account. Savings is the “extra” after spending. The “extra” will happen more likely if it becomes the first bill you pay and then spend!
Align with Values
Take care of what is valuable to you. Cover your needs and your household’s basic needs.
It is difficult to wait when the ads say to “just do it” or “treat yourself”. Keep in mind that they are selling, and your spending has limits.
Give what you can to help others. But be careful not to give to the point of needing help yourself.
Again, saving will occur when you give it value. Saving means keeping money, not spending it. That may require some patience to delay spending until you have more money or waiting for a sale to buy. Or it might mean sacrificing some good or fun things to eat or to do. That makes having the savings to do things later even more valuable because of what you did to get it.
Study Your Next Move
The habit of saving is at the core of your future financial growth. And once you have managed to accumulate a decent amount in savings, your next thought is how can I invest this money to help it grow faster?
That is, I hope that is your next thought. When I was younger, any extra money was an excuse for us to go shopping for something we wanted! That kind of shopping fun has its place in a separate account, after you have met a minimum goal to cover emergencies, paid debt, and build an investment savings account.
We all deserve some fun, just after we have done the work to deserve a break!
And even though I worked in accounting and earned my master’s in business administration, I know the arena of investing can be both exciting and overwhelming with options.
You will do yourself a favor by reading about investing, taking classes, and consulting with financial authorities to give yourself a basic knowledge of the world of investing.
Investing is the realm of money earning money. Done well, this could add another dimension to your life-long earnings. And, yes, there is some truth to that old saying, “You need money to make money.”
Save enough to be able to invest your savings, with some words of caution.
Words of Caution
Let the amount of your savings determine your investing options.
My first word of caution is to make sure you have an emergency fund set aside with at least $3,000. That is to be kept secure and available to cover expenses over expectations in your budget. In addition, your budget should have a line for a dedicated deposit in that emergency savings account to keep it growing!
My second word of caution is that there are no guarantees when investing. However, there are several layers of risk to consider. When your savings for investing are small, start with the lower risk investments. Let them grow until a satisfactory goal is achieved. Then, use your earnings to move to the next level of risk for investing.
At the low end of the risk scale are bank certificates of deposit (CDs), money market funds, government bonds, etc.
My third word of caution is to establish the amount of your savings that you are willing to lose to pursue higher earnings. Remember, there are no guarantees that investments will always make positive returns, especially in the stock market. There are other forms of higher risk investments, such as rental property, small businesses, etc.
Manage Risk
In my MBA program, one of our professors noted that we will never know it all. However, he reassured us that we would learn how to research the answers we needed to make better decisions.
When I started to buy stock, I just jumped right in based on what some friends thought might be good to have in my portfolio. Luckily, I started small. Lessons learned are less painful that way!
I soon learned there were successful investors offering advice about why certain stocks were good to buy.
A fourth word of caution, most of those investors charge a lot of money for advice. So, if you have a small amount to invest, it may be cheaper to learn by losing and finding out why you did.
There are some ways to protect yourself when buying stocks. Be sure to do some reading about “stop losses”. A “stop loss” is a setting option you can make when you buy a stock that says “when the price goes down to” the amount you decide is what you want to preserve from your purchase, a sale of that stock will automatically occur.
A fifth word of caution, related to “stop loss” settings. The market fluctuates a lot sometimes over just a few days. With that in mind, I have found that setting the “stop loss” would often sell the stock I wanted to keep over a long period of time, which leads to two possible reactions. First, you could buy that stock again, at a lower price and consider not setting a “stop loss” amount. Second, you could consider not putting a “stop loss” on the stock you want to buy and hold.
However, for most stock purchases, a “stop loss” setting is a good idea.
Another way to manage risk is to buy stocks with good cash flow and consistent profits and, even better, with regular dividends payments.
Learn to Leap, On Occasion
When you start to build an investment fund that starts to rival your salary, you may be tempted to do stupid stuff. Some of the things you always wanted look more attractive. Or you may get scared that it will all go away, and you sell all your investments.
Just breathe. Stay calm. Keep a comfortable amount in safer investments. But do not let caution make you lose out on some of the fun in investing.
Take 10% of your amount to invest and consider the array of technology stocks or other great ideas that are getting attention. Try not to get in after the run up has happened. Do some study. What is making them successful? What is their business model and concept for future earnings?
When a stock is expensive, it can be scary. And it can be rewarding. In most cases, a stock price has a direct tie to that company’s value. Buy cheap get cheap. Buy high get more value. Remember, however, there are no guarantees.
Once, I bought one share of Shopify at about $360. It went to over $600, when I sold it! What fun! Then, I noticed that stock went to over $800! It trades much lower now. Catch the fun and make some memories and some money! Just do not buy at the peak!
Some new technology companies can be fun to follow with a limited amount of your investment pool. Keep that part as a small percentage of your investments, the amount you are willing to lose.
Compound Your Future
Saving can be very difficult early in your life. However, you may have 30 to 50 years of earning potential ahead of you. With a little patience and a consistent habit of putting at least 10% of your take-home pay into savings, you will be able to start a fund for investing after you take care of some necessary personal business!
Many will falter and opt not to save first but to spend first. Too bad. The accumulation to their detriment will be tragic.
For those who value this simple practice of saving first, they have the potential to become financially independent.
Picture this, they save to cover emergencies until they reach a reasonable amount. Then, they work on eliminating any debts to be able to free up more money to put into savings. After they continue to put savings into retirement accounts that have company match, if possible, they can start a pool of savings to invest for growth.
Most of their emergency funds are in safe, low return investments. However, with some education on how to invest the rest, they can start to grow their retirement and other investment savings and compound those earnings.
Compounding is the reinvestment of earnings through profits, dividends, and interest. Left alone, over time, they will multiply your savings value.
In summary, your mindset for saving is not just to protect yourself from the financial turmoil of emergencies but to be able to grow your own fortune, to become financially independent.
Your definition may vary from mine. We all have goals that could be wildly different. However, to be debt free and be able to live off the earnings of your investments, making a job optional, would seem to be a pretty good place to be! What do you think?