How to Save To Invest: 5 Smart Steps
Unless you’ve received a large pot of inheritance or already have a lot of savings in the bank, saving is a specific step you need to take before investing any money.
Making plans to invest is wise if you want to build wealth over the long-term. It could help you invest in New Western real estate, fund an early retirement, and so much more.
Here are some tried and tested tips to take on board to help you save so that you may begin investing soon.
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Reduce Outgoings and Increase Income
The first step for saving money to invest involves cutting down your expenses and increasing your income. This step will give you more available cash from your paycheck to save and, eventually, invest.
There isn’t much in your fixed and flexible outgoings that can’t be reduced. From switching utility providers to taking lunch to work, small mindful saving changes can save you a lot of money over the months and years.
Alongside bringing down your outgoings, you’ll want to look for new opportunities to increase your income too. For example, you could create a side hustle by putting your IT skills to use in the evenings and make extra money fixing domestic computers.
Divide Your Income
After reducing your outgoings and bumping up your income, take time to divide your earnings into categories. Here you’ll be able to see how much you can save from each paycheck.
Some rules recommend dividing your money in a specific way to allow enough for bills, savings, and money to spend as you wish.
For instance, Senator Elizabeth Warren introduced the 50/20/30 budget rule. After your income is taxed, Elizabeth believed 50% of your income should go on needs such as your mortgage and groceries. 30% on fun and things you want, like dinners out and vacations. And the remaining 20% should be saved.
But your income and outgoings may differ significantly to others. You may only spend 30% on your needs, leaving you 70% to divide as you wish between savings and spending money. Because of this, it’s essential to divide your money based on reaching your goal to invest. If you want to begin investing sooner rather than later, saving a larger portion of your income each month will help you do it.
Meet Savings Priorities Before Investing
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Before you begin saving to invest, there are other savings responsibilities you may want to meet first. Especially because investments, such as stocks and bonds, sometimes require your money to be locked away for a long period of time. Restricted access may be a problem if you need the money for an emergency.
Emergency savings will prevent the risk of you going into debt, for example, if you lose your job or you become ill and can’t work for a while.
For example, saving an emergency fund is always a smart thing to do. Again some rules advise how much you should aim to save. Some say three months’ worth of outgoings is enough to tie you over. Whereas others believe 6-8 months of savings is better. But again, it depends on your circumstances and income.
Look At Investment Options
This step involves looking at potential investment choices you want to save towards.
Researching investments will enable you to see how much money you’ll need to save beforehand. And how long, by looking at the savings you can afford to make each month, that it will take you to save up a lump sum to invest.
For example, you might dream of investing in hot property and flipping houses to make a profit. With that, research in advance how much you’ll need to afford a downpayment for the kind of home you intend to buy. Plus, the money you’ll need to fix up the property. In doing so, you will get a realistic idea of when that investment will be affordable for you to make.
Tweak Your Savings And Investments
Suppose the investment you wanted to make doesn’t seem affordable. In that case, you can make changes to your budget that could alter the course of your affordability. While also looking for newer, better ways to earn money for your skills and time, to increase your chance of investing in your preferred options.
Besides attempting to boost your income, you have other opportunities to begin investing too. For example, you could partner up with someone you trust to invest in a business venture by sharing the investment cost. Or you might make more drastic changes to your outgoings, such as selling your home to use the equity to invest elsewhere.
Saving to invest takes time, particularly if you’re interested in expensive investments. Hopefully, the tips above will come in handy to help you begin your journey towards investing for a brighter future.