Investing isn’t just for the wealthy. Almost anyone can devote at least a little money to an investment, keep close tabs on it, and wind up with more money than they started with. After all, this is what we do when we put money toward our super. If you have a few thousand dollars or even a couple hundred you don’t need right away, here are some suggestions on how to make the most of it.
Note: This article assumes that you’re looking to grow your money over time and are willing to take some risk rather than just saving your money in a no-risk, low-yield savings account. It is also assumed that you already have another reserve fund set aside that includes enough money to cover normal living expenses for six months should your income end suddenly. It is further assumed that you have no high-interest debt, such as credit cards. You would be further ahead paying off such debt rather than investing your money (because there are virtually no investments that would pay you as much interest as you would typically spend carrying high-interest loans and other debt).
1. Pay yourself first. Set aside as much of each pay as you can for investing. Do this even if you can devote only a few dollars at first. Even $10 per week will add up over time. Try to cut your cost of living by budgeting. Don’t deprive yourself of necessities, but try to cut out wastage. Some of the wealthiest people in the world lived frugally when they first became serious about accumulating wealth. If your employer offers direct deposit, consider sending a portion of each paycheck directly to your savings or investment account. If you never see that money, you won’t be tempted to spend it.
2. Discipline yourself to build up your emergency fund to six months’ worth of living expenses. You should also pay off any high-interest debt you’re carrying. This is especially important in the likely event that the interest rate you’re paying on such debt exceeds the interest rate you could expect to earn from your investments. See how to decide whether to invest or pay off debt for more information. If the interest payment on your debt is higher than what you’d be making from an investment, it’s probably not wise to invest at first. In this case, try to pay off all your debt before investing your surplus; that way investing will actually make you money instead of merely underwriting your monthly debt payment.
3. Before you invest, educate yourself. You need to understand what investment options you have, how to read financial statements, how to analyze stocks (for quality, valuations, financial strength, growth potential, etc), as well as how to avoid investment scams and pitfalls, and where to find information. Warren Buffett is known as one of the most successful investors ever, having read every investment book he could lay his hands on before he turned twenty.
4. Promise yourself that you’ll keep your cost of investing (fees and commissions) to less than 2% of the amount being invested. Multiply the amount you have to invest by .02. If the trading cost is more than that, put your money in a savings account instead until you can find an investment opportunity with a lower cost ratio.
5. Remember if you plan and invest slowly you will achieve. If you don’t have a plan it’s bound to fail. This has been a known fact, your life is like a business, if you plan and have goals it will surprise you how easy they can be achieved.
Good Luck and happy wise investing.