How do you start investing money? The key to investing is savings. An effective savings strategy coupled with a smart investing strategy will help you to meet your financial goals.
Every dollar saved now helps you to control your current consumption by which the size of the income that you think will be required for retirement is lowered. Also, through the power of annual compounding, it increases the size of the nest egg you’ll have for retirement.
To achieve any goal in life, one needs to be disciplined. Similarly, saving and investing too requires discipline. A disciplined approach helps you to remain focused on your financial goals. Formulate a plan and review it periodically to ensure that you are on the right track.
The 10% rule
Your goal should be to save at least 10% of your total before tax earnings. This should be the minimum. Most millionaires live far below their means as they are disciplined and highly focused on their financial goals from the beginning. They are millionaires because they have decided to be so.
Review your current consumption patterns
Conduct a careful study of your consumption patterns. Identify items of expenditures that you can do without or explore opportunities to reduce your costs without unduly sacrificing the item. Review such items as your cable bill, telephone bill, entertainment expenditure, insurance, brokerage services, utilities, cars. Divert these cash savings automatically to an investment account.
Budgeting is vital to any savings strategy. It helps you to identify where your money is going. Wasteful consumption patterns can be controlled through successful budgeting. Often a simple spreadsheet in Excel would suffice. In fact, you can use the budget template that is already available when you buy the Home edition of Windows XP.
Plan to make saving automatic
Find out from your employer whether you can direct your paycheck to different accounts. If you don’t have such a service, you can set up an account that will take the money automatically out of your checking account each month. Let the amount be directed to an investment account. This is re-enforced savings which implies you save first and spend the rest from your paycheck.