10 saving and investing tips which you should always follow
Many adults simply ignore their financial health. You need to be aware of your finances from the time when you get your first paycheck. It is not a task which can be procrastinated. You have to always aim to save and invest your savings to compound your money over a period of time. Whether you’re 25 years old or 50 years old, you have to always take care of your finances in order to accumulate a decent corpus over a period of time. This will help you tide over any financial difficulties without any problem.
We will today share with you 10 saving and investing tips which you should definitely follow.
1. Set aside a certain percentage of your income:
Many people are forced to spend their money and thereafter grapple with the remaining income to save and invest. The problem is that if you spend first, you will most likely end up spending your entire income. A good idea is to save at the start. When you get your paycheck, you have to set aside a fixed percentage of your income. This will allow you to save at least pre-decided amount each and every month.
You have to transfer that amount to a different account or directly invest in mutual funds or stocks. Since that amount will not be present in your savings account, there is no chance of spending it accidentally. Over a period of time, it will allow you to accumulate a decent corpus.
2. Always have an emergency fund:
Before you think of investing, it is important to have an emergency fund. You should ideally have an emergency fund which is equivalent to your expenses of 6 months. This will ensure that in case you face any kind of problem, you will be able to easily handle it. These days, careers are pretty unpredictable. Layoffs are common. That is why it is important to have an emergency fund to deal with all of these crises.
In certain cases, medical emergencies, as well as things like a car break down; can easily inflate your monthly budget. This is where the emergency fund can help you. Thus, your first goal should be to create an emergency fund before you think of investing.
3. Increase your savings rate gradually:
If up until now, you have a saving rate of just 10%, you have to aim to increase it by at least 2% each and every month. Over a period of time, this can significantly increase your savings rate. Since you will be investing your savings, your corpus will start growing significantly. Thus, gradually you have to work towards increasing your savings rate.
4. Minimize your costly habits:
Many people have habits which are pretty expensive. This can be drinking wine daily or smoking a cigarette daily. When you lose such habits, it will be easy for you to minimize your expenses. The money which you save after leaving these habits can be used to pay off debt. This will allow you to reduce your debt and improve your financial health.
5. Strive to expand your income sources:
These days, with the help of the Internet you can expand your income sources easily. You need to learn a second skill. You have to work as a freelancer on the Internet. This will allow you to create a side income as well which will help you make money. Since you will be working on the Internet, you can decide your own working hours. This will mean that in addition to your normal day job, you are able to easily create a source of side income.
In order to learn that skill, you can even sell some of your unnecessary stuff or organize a garage sale to fund your education. This will allow you to learn new skills at a faster pace.
6. Concentrate on smaller savings:
If up until now, you have not been saving any portion of your monthly income, it will be difficult to start saving $ 500 right from the start. You have to take baby steps when it comes to saving. In the first month, you have to just try and save $ 25. In the second month, you can hike it to $ 50. When you take baby steps, it will be possible for you to save more and more each and every month. This will give you the confidence to go ahead with your savings plan. In order to do so, you will have to live below your means. Only when you are ready to do that, you can increase your savings gradually.
7. Diversify your assets:
Simply saving money in your savings account is not a good idea. You have to invest that money. There are plenty of avenues for you to do so. You can buy precious metals like gold and silver or you can buy stocks or mutual funds. You have to always diversify your assets. Sure enough, when you just start saving, you will not have a lot of options but as you build a corpus, you can easily invest it in different asset classes.
Proper diversification will always ensure that the risk is reduced. This will allow you to grow your corpus over a period of time.
8. Understand the cost of investing:
When you invest smaller amounts of money, the cost of investing can be on the higher side. Many brokerages charge a minimum brokerage even when you buy stocks worth $ 100. That is why, before investing in any asset class, it is important to understand the cost of investing. The cost of investing should be economical in the longer run. Only then, it is worth to invest the money.
If you’re looking for investment avenues which have a lower cost of investment, the first thing which you should look at is 401(k) plan. It will allow you to invest without high upfront costs. Many employers will subsidize the upfront costs as well. In fact, many companies match up the amount which you put in your 401(k) plan. Thus, you can increase your investments and at the same point of time reduce the cost of investing.
9. Stick to a proper investment plan:
Haphazard investments or irregular investments will do you no good. You have to create a proper investment plan. If you do not have knowledge about investments, you can contact a certified financial planner. The planner will help you create a proper investment plan. You have to stick to that investment plan always. You need to keep in mind that any investment plan will be able to show its results only after 5 to 7 years. You should not try and gauge the results within the first few months.
10. Assess your risk:
While making any investment, it is important to assess your risk. If you want low-risk investments, you can buy Treasury bills or bonds. Similarly, if you do not mind the risk, you can invest in direct equities as well. If you do not want to analyze the balance sheet and the research reports, a good option is to invest you through mutual funds. Thus, you have to always take into account your risk profile and after that take a call on the investment avenues which you can pursue. Again, hiring a financial planner will provide you with the proper idea regarding your risk profile.
So, it is high time that you start saving a portion of your income. Instead of just keeping it in your savings account, now is the time to find more about investment avenues and invest your money. With the help of 10 tips which we have listed above, you will be able to do so quite easily.