You don’t have to be a financial genius to master the art of saving and investing — you don’t even have to have a lot of disposable income. There are basic steps we can all take to help build our financial stability and set ourselves up for success. The key is to put in a little effort upfront and then reap the rewards for years to come.
Here, we’ll cover basics like using online resources to create a budget, establishing a savings plan, and developing a long-term investment strategy. By following these simple steps, you can save money and put it to work in no time.
Assess your finances
The first step is to assess your current financial situation. Start by creating a budget to track your income and expenses. Focus on identifying areas you can cut back on spending to free up some money. For simple ideas, check out our guides to home hacks, back-to-school budgeting ideas, and even how to get free high-speed internet.
Next, take a look at any debts you may have and build a plan to pay them off. High-interest debts, such as credit card balances, should be a priority as they accumulate interest rapidly. It’s important to pay off these expensive debts before beginning to invest your money.
Personal financial management tools like Rocket Money (yes, you might recognize them from their ads about cutting subscriptions, but they also have finance tools) and LearnVest can help you set a budget, better understand your spending habits, and help you approach your finances with more knowledge and precision.
Start saving
The earlier you can start saving, the more time your money has to grow through compound interest. Even if you can only save a small amount each month, small steps make a big difference. Consider setting up direct deposit into a savings account to make saving automated and easy.
Selecting the right savings account is another way to help boost your savings potential. Look for accounts that offer competitive interest rates and low/no fees, and consider whether you want a traditional savings account or a high-yield savings account. A high-yield savings account typically offers a higher interest rate than a traditional savings account, which means that your money can grow more quickly, especially if you start saving at a young age.
Having a savings account provides a great opportunity to track your progress and set achievable savings goals. When you create a savings plan, you should determine how much money you want to save and by when. Once you have a goal set, you can break it down into smaller milestones that you can track more easily. Using a savings account can help you monitor your progress by reviewing account statements and checking how much you’ve saved over time — a great source of personal motivation!
Start investing responsibly
While saving is an important first step, investing your money can help it grow at a faster rate. Start thinking about your goals. Are you looking for long-term investments to build for retirement? A short-term boost of cash? Then,consider your risk tolerance. Risk tolerance refers to how comfortable you are with taking risks with your investments. It’s important to remember that, with any investment, there’s the chance to lose money, but some options (like bonds) are safer than others (like stocks, cryptocurrency or mutual funds).
Once you’re ready to get started, there are plenty of sites, apps and tools out there to help beginners. Acorns is a great place to start, as it allows you to invest with spare change by rounding your credit and debit purchases up to the nearest dollar. Acorns invests this change into low-cost funds. For just $1 per month, it’s a great choice to kick-start your investing journey.
Another option is Robinhood, which allows you to choose from stocks at fractional shares, where you can start investing for just $1. Robinhood also offers your very first stock for free. Both Acorns and Robinhood allow you to set recurring investments, which allow you to be automatically consistent as you begin to invest. These platforms are also great educational resources, offering recommendations and financial education for your first trades.
Investing, of course, does come with risk. But with the right tools, and a basic understanding of the best investment options for you, it is possible to get started today, even without a large disposable income.
Diversify your portfolio
When investing, it’s a good decision to diversify your portfolio. Diversification means spreading your investments across a variety of assets, sectors, and regions. By doing so, you reduce your risk of losing money if one particular investment performs poorly. A diversified portfolio can also help to maximize returns while minimizing risk.
One way to diversify your portfolio with limited funds is by investing in exchange-traded funds (ETFs) or mutual funds. These options pool together money from many investors, which can be used to buy a variety of larger investments. This approach allows you to diversify your portfolio without having to buy individual stocks or bonds, which can be expensive and require a lot of research.
Review and adjust your plan regularly
Your financial situation may change over time, so it’s important to review and adjust your plan regularly. Make sure you’re on track to meet your goals and make any necessary changes to your budget or investments.
Various factors such as career changes, life events, and economic conditions may alter your priorities. To review your financial plan, start by assessing your current financial situation, including your income, debts and investments. This will help you identify any changes that may be necessary, such as adjusting your budget or investment strategy. If you have the resources, talking to a financial advisor is always a good idea.
With the right planning and execution, you can achieve your financial goals and create a strong foundation for your future. Remember, it’s never too late to start, and every small step toward saving and investing can make a big difference in the long run.
