As financial advisors, we keep saying that you need to save money in order to invest in the stock markets. This is one of the easiest ways to build enough wealth so you can retire and not be worried about your nest egg. The problem is that once you get settled and bought your first property, have your first child or get used to change your car every 3 years and travel around the world, money seems to slip away from your hands. Therefore, there is no more money to invest.
I look at my sister-in-law and her fiancé and this is exactly what is happening right now. While I am not too worried for them since they are pretty young and they have the time to wake up and start saving, they are still entering slowly but surely into the rat race. They built an amazing house last year, filled it with new (and great looking) furniture. This year they are investing thousand of dollars doing their landscape. They buy a lot of clothes and go to the restaurant every week. And since we bought our new car, they are seriously thinking about getting a new one as well. They are young, they are both working and making good money, and hence, they don’t save a penny per month. I am not judging them since it is the case for most people. At least, they are paying most of their stuff cash ;-).
How To Save Money To Invest?
#1 Pay Yourself First
This is the most obvious and simple money advice. Hence, most people don’t follow it! Tomorrow morning, call you bank and ask to save $100 per month into a mutual fund. While saving $1,200 per year won’t make you rich, you can’t say it will hurt your budget either! Therefore, start building the habit of saving money and set up an automatic wire into a fund. After a few months, you won’t even feel the difference.
#2 Take a look at your debts and restructure them
Most insurance advisor knows this trick. When they meet with their client for the very first time, they look at their balance sheet. They take down all debts (loans, lines of credit, credit cards, mortgage) and they wrap them around with a new loan with either:
– Lower rate
– Bigger amortization
This has the immediate effect of decreasing the client’s monthly payment. So their speech is: “if I make you save $200 a month, would you invest $100 with me (through insurance or investments) and keep the rest for vacation?”.
#3 Take a look at your budget
You will probably be able to find a few bucks here and there that can be saved from your budget. Money that is nice to have to spend but could easily be invested. I am thinking about cutting 1 restaurant per month, which would give you an additional $25 to invest. Among the places you can save, you can:
– Take 3 coffees per week instead of 5 (2$/week: $100 per year)
– Take the bus and metro instead of your care (you save on gas, car maintenance and insurance too!)
– Electricity (buying energy efficient utilities, heating less during winter and cooling less during summer, you can save a lot of money).
– Movies (rent them instead of going to the theatre!)
– Vacation (plan outdoor activities instead of going to the amusement park)
#4 Negotiate your insurance premiums!
You probably pay for a lot of insurance premiums for:
– Your car
– Your house
– Your life
– Your mortgage
– Your kids
Call 3 companies for each of them and I guarantee that you will be able to find a better deal somewhere. Therefore, you would save another $10-$25 per month that you can easily invest.
#5 You get a raise? Invest the difference!
Several people plan their spending according to their next raise. I have an idea for you: get used to live with your income and invest the amount of your raise every year. After a few years, this will make a huge difference.
In the end, the key is not to try saving $500 a month right away. It is much easier to find bits and pieces and increase your monthly savings from months to month. Build a chart and write down how much you save every month and find a way to save more the following month! At the end of the year, you will probably be saving $500 per month without being in pain!
image source: zen photostream
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