“Save to invest, don’t save to save”
Starting is the hardest part! We’ve all heard this before, be it for starting an essay or assignment, a new job or a business. But it shouldn’t be, and in the case of investing, it’s certainly not.
To start investing you need cash. Not necessarily a lot of cash – you can start with as little as $500 – but you still need cash. We all know that unfortunately, money doesn’t just grow on trees, but with discipline and time on your side you can make your money grow.
Let’s face it, saving can be tricky, especially when there are so many other financial demands in life – your rent or mortgage, your mobile phone bill, food, beers and cocktails, Netflix, Spotify, romantic dinners, petrol, insurance, holidays, the list goes on. The good news is that it is STILL possible to invest without breaking your budget and living on 2 minute noodles. All it takes is a plan.
Get into a good habit early and stick with it. There is nothing special about it, and you’ve probably heard it a thousand times before. But there is a reason for that – IT WORKS! For some it is easier than others, so it’s about finding the balance in your life that works for you. Some people are comfortable saving huge chunks of their pay and living frugally, some will save a smaller portion and still have enough to eat out each week, while others will save and then blow it all on a fun night out or a spontaneous purchase. All three examples are fine. Why? Because there is the behaviour of trying to save. Obviously the third example isn’t desirable but at least an effort was made to put money away. The worst thing you can do is sit back and hope that one day that money tree will grow, and in the meantime you spend all you earn. Below are a few hints and tips you can try to start saving to invest. `
The Three Pots
A basic principle to help you organise your money is to break it into three different ‘pots’ every time you’re paid. These pots could be 3 separate bank accounts, or you could just keep track of them using a budgeting app on your phone or excel spreadsheet. Whatever works for you. The pots should be split as follows:
- Living expenses – the first pot you put all of your living expenses in. Things like rent, mobile phone bill, gas and electricity, insurance, transport go into this account, once you’ve worked out how much you need to set aside each pay. Leave any excess in there each month as well, because it’s always handy having additional in you ‘bills’ account for the unexpected.
- Spending – this account is for your food and for spending on whatever you like. Nights out, movies, presents, clothing, whatever floats your boat. But try to make sure you limit yourself to that amount. It is this pot that causes people the most trouble – they overspend and then take money from their other pots to keep spending. Act your WAGE! The trick with this pot is to make sure you account for everything. Don’t try and kid yourself and think you can go a fortnight on $100. A social life costs! Be accommodating and then stick to it. It’s better to have excess in your pot than take from others.
- Savings (to invest) – the third pot is the good one. This is where you can make some money. The last third or so of your pay should be put into a savings account that you don’t touch. This account can be used for saving for anything – a holiday, a car, the new console, or stocks! Put your money in and leave it, until you reach that goal. Once again, it doesn’t have to be exactly a third, but the main thing is that you decide on an amount that works and stick to it. It’s surprising how good it feels watching that bank account rise each week!
The message here is simple – three main spending pots – one to keep your life going, one to have fun with, and one to invest with. See how you go.
The Trickle Method
If you’re not comfortable with splitting you pay specifically, or just can’t be bothered, then the trickle method is your next best bet. The only thing it requires is a separate bank account and and an automatic transfer set up.
Find a high interest bank account. Often online banks offer the best rates, such as ING. As you won’t be touching this account often, you want it to be working for you while it sits there.
Now for the trickle. Set up an automatic transfer into this account for when you are paid. Choose an amount to transfer across and then set and forget. The best way to determine what amount to trickle through is to set a goal. Let’s say you want to save $2500 by the end of the year. Set your transfer for $50 a week and BANG, by the end of the year you’ll have it. Don’t tough this account. In-fact, if you’re notoriously bad at saving, put a block on withdrawals on the account until you’ve reached your goal.
You can set it so you save $500, and then once you do, invest that $500 and start again. This is a lot more achievable in the short term, and a lot more fun as you’ll be reaching your goals faster and investing more often!
Remember: the goal is to put something away every pay. Even $10. That is still better than nothing. The trickle doesn’t have to be huge but it should be something.
There are alternative ways of saving, and getting access to the market without needing hundreds of dollars. If you find that the above two methods still don’t work for you then you might want to try something a bit different.
- Acorns – Acorns ‘automatically invests your spare change’. You link up your cards, and it will round up your purchases to the nearest dollar, and invest that into the stock market. You get to choose your portfolio risk – from conservative to high risk – and it gives you a great idea of what portfolios look like.
- For example: you spend $3.50 on a coffee, paying with your card. Acorns will round it to $4 and take the 50c, putting it into the stock market. It doesn’t seem like a lot, but the idea is patience. Every cent counts. Before you know it you’ll have hundreds in there.
- You can withdraw whenever you like. To make it worth the monthly fee however, it is best you add additional money to the account. It’s super easy to do through the app. Use the trickle technique. Tell the app to take out $10 a week from your account on top of the round-ups, and it will also invest this. It’s a very easy way of investing, hassle free!
- Stake – Stake allows you to invest very small amounts into the stock market. If you have $50, stake will let you invest it, both in the Australian market and overseas. You can invest in Apple and Google, Amazon and all the big brands, very easily and without spending hundreds, or thousands. If you have a spare $100 then Stake can help you put it to good use.
- Pocketbook – a great app to help you plan your budget and track your spending. Pocketbook tracks your spending and lets you know where your money goes, in order to help you create a budget that works for you. With fantastic ratings, it’s a must try if you need additional help sorting your money. And who doesn’t…
So there you have it. As we mentioned before, it’s about what works best for you. Don’t compare yourself to others, don’t think that it is going to happen over night. You need to be patient and disciplined and give yourself a break. If you save and save and then happen to spend a bit on something worthwhile, then so be it! Just stay in the habit of putting money away and then when you reach your goal INVEST IT! Buy some shares, put it in Acorn, or Stake, or an Exchange Traded Fund. Before you know it, what you once thought to be impossible, becomes very possible. And then the best thing.. you start to love it.