Often when I talk to people about investing, I am surprised by the number of people who say they can’t afford to invest. The reality is you can’t afford not to. Investing wisely both protects your money and allows it to grow. For example, the average of the S&P 500 over the past 12 months has been around 17-18% while most bank accounts offer you below 1%, which doesn’t even keep up with inflation. With a plethora of options for investing using online brokers, as long as you don’t trade frequently (which an Intelligent Investor should avoid anyway), you can turn a profit even with a small amount originally invested. Here are some key tips to help you increase the amount you invest.
1. Research and be realistic.
First decide what your goal is. Are you saving for a new home? Retirement? Decide how much you’ll need and then break that down into smaller chunks and determine what you’ll need to be putting away now to make that happen. Keep in mind the risks you can afford to take when investing and assume you’ll average about 10% return per year, while also being aware that the market is never predictable.
Next, decide how realistic your goal is. If the goal you’ve set for yourself in the future means you’d have to save way more than you can afford now, set a more manageable goal. While you shouldn’t give up on your ideal goal, setting a realistic starting point will give you confidence to keep investing and allow you to increase your investment over the years.
2. Know what you’re spending.
Take one month and track everything that you are spending. Don’t judge yourself and don’t cheat. This isn’t about being perfect, this is about awareness. When you know how much you are spending you have the opportunity to decide if you are ok with that number and give yourself the power to make changes. You may find that you are spending more than you feel comfortable on certain things or perhaps you’ll find that you’re fine with your spending. Either way, knowing exactly where your money is going gives you the ability to feel confident with your finances and make any changes if necessary.
3. Make changes gradually.
Start by designating a monthly amount to invest as well as an amount to increase by every month. A $10 increase in investing every month is small enough that you won’t feel the change, but after only ten months of increases you’ll be investing $100 more per month than before. Setting this up through automatic deposits to your investment account can help make this process easier. Additionally, after you know how much you are spending (see #2), you can decide where you want to reduce your spending and use that money instead to invest.
4. Use all your opportunities.
When you pay off your car, credit card, student loans, etc. designate that same amount to investing. You haven’t had that money available for spending and as a result it will allow you to increase your investing with ease. The same is true for all increases in income as well such as raises, inheritances, tax refunds, etc.
5. Start NOW.
Statistically, the sooner you start investing, the greater amount of money you’ll have when you reach your goal date. While you might not be able to save as much as you would like right now, procrastinating means you’ll have to save even more later.
What other tips do you have for increasing the amount you invest? Please share in the comments below.