I hope you found Part 1 budgeting (Money Monday Part 1 – Setting and Sticking to a Realistic Budget) and Part 2 talking about taking advantage of company offered benefits helpful (Money Mondays Part 2 – Take Advantage of Company Sponsored Benefits). I believe that these are the first two steps to establishing a successful financial future. Budgeting is key to help you reach the goals you want and plan accordingly for the future. If you work for a corporation and they offer a savings plan such as 401k then it can help you accumulate more wealth. This next post is going to discuss investing outside of your company offered plans. Entrepreneurs this post may apply more to you as you don’t have some of those other options discussed in part 2. Remember this is a 6-part series but the commitment is long term….like decades long. It’s important to create multiple streams of investments and diversify your portfolio. Keep in mind that you should do your research and never put yourself in debt to invest.
Start Somewhere and Start Early….
When I first started my savings plan (outside of work), I started with $250/month. I knew that I could afford $250/month without falling behind on bills, running up credit card debt, and knew that it was an amount that I could commit to long term. Now $250/month doesn’t sound like a lot of money but let me tell you in a year that adds up to $3,000/year. As I grew more in my career I was able to start qualifying for bonuses as well as increase my salary. As my salary increased I used the extra money to increase my monthly investment. Again using the same three rules above; without falling behind on bills, going into debt, and an amount that I could commit to. I was able to increase my monthly investment to $500 which totals to $6,000/year before any growth.
A lot of people expect and want to get rich overnight so they think $100, $250, or $500 a month isn’t going to add to any significant savings. Well the age old saying that ‘YOU NEED MONEY TO MAKE MONEY’ is very much true. The more you have the faster it grows, its simple math. If you make 5% of $10,000 your account grew by $500 but 5% of $100,000 is $5,000 of added growth. Mind you 5% is very conservative which may be the right move for you depending on your risk comfort level.
The younger you start investing the more time you have to play in the market which means you are blessed with the opportunity to have a riskier portfolio. As you get older you may want to adjust your portfolio to ensure any volatility to the market will not crash your entire portfolio. I always recommend working with a financial advisor to discuss your options and what makes the most sense for you based on your current situation. You are always able to make changes so don’t think that you are stuck to any one type of portfolio.
I Will Share Some Personal Examples;
I started investing in the stock market when I was about 22 years old which is relatively young to start. I knew I wanted to save for the long term and didn’t plan on using any of the money from my portfolio for at least 30-35 years. Given the average market cycle is 7 years, I had about 5 market cycles in my calculation. I also was not dependent on this money for anything so I could handle a pretty risky portfolio. This account has done great over the last 9 years giving me an average return rate of about 15% and 20% in more recent years. I don’t add any money to this account and just let her grow and blossom on her own.
After a few years, I wanted to create another portfolio with monthly investments (noted above), that didn’t take on as much risk. My thought was I’m still in it for the long term but I wanted a more conservative portfolio in the event that something catastrophic happened and my first account didn’t do as well as I had planned. This portfolio has grown on an average of 7% over the last 5 years, about half of the one above. Although I know I could be doing better it gives me some peace knowing that I also have less to worry about especially during times like Covid.
Again, I’m still in my early thirties so both of these accounts have about another 20+ years before I touch them, but I started off small and told myself to think long term. As my career continues to grow and I get promotions, raises, and bonuses I plan to invest more into these accounts. The key here is the earlier you start saving the more risks you are able to take and more importantly the more time you have to grown your investments regardless of risk level.
So the faster you can get to saving the faster you can get to investing!
Research, Research, Research and More Research
I can’t stress this enough…don’t just jump into an investment because Elon Musk tweeted it or because you read it on a financial blog. There is a TON of information out there but not all of them are necessarily suited for you. Before you commit to an investment make sure you have done your thorough research as you are the only one that will benefit or lose based on your decisions.
I’ll jump into more details in Part 6 but there are a TON of ways to get into investing by starting off small, just to name a few below;
Prosper – lend money to other people (might recommend waiting until COVID-19 settles before jumping on this but I made about 7% returns with a conservative profile)
Day Trading – if you have the skills and time to read and analyze small and large companies this is a great way to get a great return on your money
Crypto – risky but there is a lot of money to be made. Research is very important to be successful here!
Short Term Rental Property – Don’t have the capital to purchase a rental or income property? Look into short term
Own Property? Rent your space out on Airbnb or Peerspace to make some money back on your real estate investment.