Getting started with investing as early as possible in your life is a smart move. Though it’s never too late to get started, it’s just like the old saying “The early bird gets the worm”. The sooner you start investing, the bigger your rewards.
I talk to many people who tell me they can’t possibly save or invest because they don’t have any extra money once their bills are paid. If that’s the situation you’re in, this article will show you how you can begin saving or investing regardless of your income. You don’t have to be wealthy to get started, but you do have to think differently about money, and you do have to use the money you currently have in a different way.
If you want to achieve your investment goals, no matter how small or big they are, there are three main principles you need to learn:
- Invest In Yourself First
- Adjust Your Spending Priorities
- Realign Your Assets
Principle #1: Invest in Yourself First
This is a major re-think for most people, but you do need to start by changing what you do when you get paid your wages or salary. Most people, when they get paid, take care of their bills first, and if there’s any money left over they put it in the bank. The problem is, there’s almost never anything left over. Money just gets spent. In some cases, there’s not even enough to pay the bills. So, I’m recommending that you handle your money in an entirely different way.
You and your family are your number one financial priority. Therefore, you should invest in yourself first. Starting today, whenever you get your pay, first take an amount off the top and pay yourself first. Invest in yourself upfront and pay your bills out of what’s left over. You could arrange for a payment plan with your creditors if you can’t pay the full bill. Most companies are open to give you some extra time to pay your bill, when you contact them.
The important part is that you decide on an amount you want to save each month, let’s say it’s going to be $50. You’re going to arrange for your employer to take the required amount out of each pay and direct deposit it into an account that you’ve set aside for your investments. Then, you’ll pay the bills out of what’s left.
Having the money taken out automatically keeps you from getting your hands on it, and keeps you from spending it on something else. You’ll be surprised to see how even a small amount left untouched and earning a good rate of interest can add up.
Principle #2: Adjust Your Spending Priorities
Along with investing in yourself first, you’ll also need to adjust your spending priorities. Adjusting your priorities allows you to bring your spending habits under control. Most people don’t have any idea how much they spend from one week to the next. To get a better handle on your financial situation and where your money is going, I recommend that you monitor your spending habits and develop a budget. I’ve got some great tools on my website that can help you do that. Go to www.financialindependencekit.com and download the FREE Kit, which includes a copy of my Budget and Savings Planner. The worksheets in the Budget and Savings Planner make it easy for you to document your spending habits and see where your money is going.
I recommend that you keep a spending diary for 30 days. During that time, write down every penny you spend. For most people, this activity is an eye opener. Once you see where your money is going, it’s easier to make changes.
Using what you’ve learned about your spending habits, create a budget and stick to it. Get rid of unnecessary expenses by learning to distinguish between things you want and things you really need. Eliminating unnecessary expenses will allow you to free up income that you can now re-direct toward your investments.
For example, do you really need to buy coffee every morning on the way to work? Can’t you make it at home? Do you really need a brand-new car? Couldn’t you get by with a used one? And what about all those tech gadgets? Do you really have to have the latest smart phone? For that matter, are you spending wisely on necessities like food, clothing and shelter? For example, could you save money by eating out less and cooking at home more?
Take a good look at your spending priorities and decide what you could do without, or at least what you could spend less money on. Cut back on your discretionary spending and invest the money you’re freeing up, or use it to pay off debt.
Principle #3: Realign Your Assets
By realigning your assets, I mean, make sure you’re using your money in the best possible way. For example, once you free up extra income and start saving or investing it, make sure it’s getting a good rate of return. If you simply put your money in a low-yield savings account, it’s not doing very much for you. Instead, you want to invest in higher-yield instruments like fixed term deposits or cash management accounts.
Another good realignment strategy is to use the extra income you’re freeing up to pay off your debt. For example, let’s say the money in your savings account is only earning 4% but you have credit card debt with 18% interest. In this situation, it’s better to pay off your credit cards with that extra money rather than to put it in the bank.
By the same token, if the interest on your mortgage is higher than your investment interest, you should use your excess cash to make payments on your mortgage principal. Don’t let your cash sit around in a low-yield account while the interest is piling up on your debt. Always be certain that you are getting the most from your money.
For help getting started with saving and investing, click here to visit www.financialindependencekit.com or go to my website www.RobertBauman.com.au.
Copyright © 2013 Robert Bauman. Feel free to use this article in your hard copy or eNewsletter, provided you display the Copyright notice and source reference in its current form.
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