Whether you're embarking on your path to financial independence or you're a seasoned investor, the importance of saving and investing simultaneously cannot be overstated. Stay vigilant for both promising opportunities and potential pitfalls along the way.
Beginner investors often need a gentle nudge when it comes to finding the right balance between saving and investing, and if that sounds like you, then pay close attention.
On the other hand, experienced investors with substantial cash reserves sometimes require a friendly reminder. While they may have their money distributed across various accounts like money market, online savings, checking, and retirement, it's essential to step back and evaluate the allocation and reasoning behind each bucket.
Every decision in the financial realm carries a certain level of risk. It never hurts to have a plan for the future and build your portfolio. The truth is, you never know what's around the corner. There is always the possibility of dipping into your savings account or emergency fund at some point.
Striking a delicate balance between your income, expenses, and savings goals is an ongoing challenge. While it can be particularly daunting at the beginning of your investment journey, not to worry. We have a bunch of valuable saving tips and tricks that will empower you to take control of your finances and explore a world of diverse investment options.
Here are five money-saving tips tailored for those who are investing.
Tip 1: Pay Yourself First with a Savings Account
Have you ever wondered, What did I spend my paycheck on? You wouldn’t be the first.
For most individuals, as soon as a paycheck lands in their account, it vanishes into thin air, absorbed by expenses like rent, groceries, and utilities. Consequently, many people find themselves perpetually saying, "I'll save with my next paycheck," but without any concrete plan because, let's face it, there's always something to spend our money on.
To break free from the cycle of earning more only to accumulate higher expenses, it's time to embrace the powerful concept of "paying yourself first" whenever you receive income. Give priority to your savings goals and extract the designated amount right away!
Start small by directing a modest percentage (like 10% to begin with) of your paycheck into a savings account. I have a savings account specifically built for investments. It is an account separate from my emergency fund. This must be done immediately upon receiving your paycheck, even before settling other bills or expenses. Thus, if your take-home is $8,000 every two weeks, then set up an auto-transfer that transfers $800 into your “investment savings account.”
Similarly, If you have a job offering direct deposit, make the most of it. Easily split your deposit by amount or percentage. Allocate 10% to your investment savings fund and let the remaining 90% flow into your checking account. This way, you eliminate the risk of forgetting to transfer or accidentally spending the intended savings. It happens automatically, like clockwork, every single time.
By moving a nominal sum to a separate account, you create a valuable barrier that shields your savings from impulsive spending. Rest assured, once you've paid yourself first, you can spend what's in your checking account without an ounce of guilt or worry.
Tip 2: Funding Your Investment Accounts with Side Hustle Earnings
Many folks have a side hustle. Whether you're aiming to boost your credit score, achieve income goals, or save up for a significant purchase, a part-time job or side hustle can be a game-changer in accelerating your progress!
With a multitude of opportunities available, both in-person and online, that foster connection, collaboration, and service-based solutions, diving into the world of side hustles is an effortless way to set yourself on the right path.
Have you heard of the gig economy? Join the thriving online community of entrepreneurs earning money, and you'll be on the fast track to saving and investing in no time.
The key is to take the income you earn from your side hustle and allocate it towards your savings. Decide whether you want that extra income to flow into your retirement savings account, high-yield savings account, emergency fund, or any other investment account or financial opportunity that catches your interest.
Taking on another job does not sound appealing, so self-scout what you might have to offer. With today's online platforms, you can rent your car, your home to vacationers, your pool (if you are a high-roller), an RV or even equipment. Just brainstorming, what about dog walking, dog sitting, creating stock footage, or a YouTube channel. Some people do well buying and reselling stuff.
Tip 3: Prepare for the Unexpected with Emergency Savings Accounts: A Foolproof Plan
Life is full of uncertainties and unexpected twists. That's why the age-old advice of "plan for the unexpected" holds true. While you may not be able to predict the exact amount you'll need, you can always save a general sum or a percentage of your income to create a safety net. You never know when an unforeseen expense like a car repair, job loss, or financial hardship might come knocking on your door.
When faced with a sudden financial crisis, you might be tempted to halt your investments, assuming that you'll have immediate access to the funds you would have otherwise invested. However, if you have an emergency fund in place, you won't need to disrupt your investment goals or impede your progress toward building wealth.
An emergency fund serves as a financial cushion, providing you with the means to cover home repairs, unexpected emergencies, and other unforeseen costs during times of crisis. Once the repairs are taken care of, insurance kicks in, or you secure a new job, you can replenish your emergency fund while ensuring your investment strategy remains uninterrupted.
As you build your emergency fund, you can adjust the amount saved based on your expenses, financial obligations, employment status, or any concerns you may have. It's also recommended to re-evaluate your savings account goals once or twice a year. Financial experts universally suggest aiming to save three to six months' worth of expenses in your emergency fund.
Maintaining a robust emergency fund is essential to safeguarding your retirement funds, investment accounts, and other savings. And here's a helpful tip: whether you're building your emergency fund, padding other savings accounts, or channeling funds into investments, automatic recurring transfers are your best friend.
Tip 4: Pay Off Your Loans with Determination: Take Control of Your Finances
It's no surprise that you feel a surge of frustration whenever you glimpse at the total balance of your loans and credit cards. According to US statistics, you're not alone in this struggle.
Whether it's credit card debt, student loans, personal loans, or high-interest debt, these obligations can pose significant obstacles to building an emergency fund or investing in your future.
They consume a large portion of your paycheck, leaving limited funds for savings and investments. If you find it challenging to make progress towards your savings and investment goals, it's time to prioritize certain debts for payoff.
Seeking guidance from financial advisors can offer tremendous benefits. They can assess your credit report, align it with your personal financial budget, and assist in creating a debt repayment plan. They'll consider interest rates, minimum payment requirements, and help prioritize which debts should be tackled first.
Simply put, by eliminating high-interest debt, you can free up more money to invest in your savings and achieve your financial goals, even if your income remains unchanged.
Tip 5: Gain Insights into Your Investments: Stock Market, Money Market Accounts, and Real Estate
Every CD, broker service, transaction, securities deal, and mutual fund, incurs costs. As you embark on your journey towards simultaneous saving and investing for wealth-building, paying attention to the fees associated with each opportunity is crucial.
For instance, when examining mutual funds within your retirement or brokerage accounts, it's wise to assess their costs relative to projected returns. The more you understand about fees and transactions, the better equipped you'll be to make profitable financial decisions.
Employers often provide retirement accounts as part of their benefits package. However, it's important to keep an eye on fees and minimum balance requirements, as they can be substantial. If you discover steep fees within your employer-offered plan but still want to take advantage of the match (because who would pass up "free money"?), consider contributing enough to earn the match while establishing a separate brokerage account outside of your employer's offerings.
Ultimately, whether you choose to invest within an employer-offered plan or on your own, as long as you adhere to an overall financial plan for wealth building, the decision is inconsequential. Conduct thorough research, evaluate fees, adjust your budget, and align your actions with your financial goals.
Ready to Optimize Your Savings-to-Investment Ratio?
Regardless of where you stand on the path to financial freedom, the key takeaway is to take the time to establish and review your financial goals. Regularly scheduling a "money date" to rebalance, assess risk tolerance, adjust your budget, explore new financial products, or refine your wealth management strategy is essential.
When you prioritize and respect your finances, they reciprocate by taking care of you.
While you monitor your expenses, emergency fund savings, and investment returns, we invite you to join the Fortress Federation Investor Club. We love discussing all things finance! Being an informed investor like yourself increases the likelihood of making sound investment decisions and achieving your financial milestones, possibly even surpassing your expectations.
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