Everyone wants to have more money, it is a non-stop desire for most people to get more money than they currently have. If you have a hundred, you want a thousand. If you have a thousand, you want ten thousand. The list goes on and on.
The good news is, there are actually tons of ways to grow your money besides having a job. Some people have even managed to pull off insane feats of earning up to billions just by investing.
However, before you start your investing journey to grow your money, you should learn some basic fundamentals about managing your money well.
How to manage your money well
According to MoneyStrands, they have given a lot of valuable advice regarding how to manage your hard-earned money wisely.
1. Create a budget
First things first: create a budget if you haven’t already. Is it necessary? Are windshield wipers necessary in the rain? Trust me, you need one.
Creating and sticking to a budget might seem a little tough to achieve at first but it pays off in the end (no pun intended). Budgeting helps us see with clarity and full transparency our financial situation and this is of most importance for better managing your money.
It’s the first step to help us pay off debt and start saving for future expenses such as a mortgage, a car, and your retirement. It’s what will bring balance to your financial life and give you peace of mind.
To begin, you will need to understand your expenses and your income to better manage your money. This is addressed in the following 2 steps:
2. Understand your expenses
Ask anyone off the top of their head to tell you how much they spend a month on everything and they might not be able to do so. This isn’t rare.
Many people actually don’t know the total amount of expenses they generate on any given month. This is a problem, but there is an easy solution for it. Here it is: for one month, keep track of all your expenses. Easy-peasy. Take all your receipts (groceries, restaurant bills, utilities, etc.) and look at your bank statements and add up all of your expenses. Remember to keep track of expenses paid by cash as well as credit cards.
The idea is to have all your expenses (both variable and fixed) accounted for to get a total amount. This will allow you to see the whole picture and know how to manage your expenses going forward. You will also want to compare your historical performance over time.
3. Understand your income
Ask anyone off the top of their head to tell you how much they make a month and although they probably won’t tell you, internally they know. This is the difference between income and expenses, most people know their full monthly income but have less knowledge of their full monthly expenses.
Nonetheless, the point is to figure out your total expenses and subtract that from your total income for the month in question. Here is how the results should pan out:
- If you end up with a negative number this means you spent more than you made. Actions to take? Reduce your spending and expenses until the total reaches zero.
- If you end up with a positive number this is good (high five!) and means you spent less you made. Actions to take? You could increase your debt payments or increase your savings.
Once you understand your expenses and income and have a firm understanding of the money coming in and out of your life, it’s time to take some additional steps to best manage your money.
4. Consolidate your debt
Debt, the dreaded word. No one likes debt. No one. And most people that need help managing money actually need help getting out of debt. Sound familiar? If you are like the majority of Americans (~80%), then you most likely have debt.
The first thing to do is to get it under control and work on getting rid of it. If you have credit card debts, student loans, and other debts; look to consolidate them and try to get the lowest interest rate possible.
Again, it’s all about taking the proper steps to control your money. There are options out there that allow you to combine several unsecured debts such as credit cards, personal loans, and payday loans, into one bill rather than pay them individually.
If you only have a single credit card debt and are on a tight budget, try paying at least the minimum amount as soon as you get the credit card bill. Then, if your finances permit it, and you come across some more money, try to make the same payment a few weeks later.
Try keeping this payment cycle going until your debt is fully paid off.
5. Slash or remove unnecessary expenses
Big fan of Starbucks? If you are buying a Venti Caffe Latte every day (as delicious as they are) that’s around $4 out of your wallet. Multiply that out and you could be spending about $1,400 a year just on that. Maybe, just maybe, consider making your own blend at home to pinch those pennies?
Paying for a gym membership but doing yoga in your backyard? Cancel it. Think long and hard of other memberships, subscriptions, accounts that you are paying for but could live without.
Remember, the idea is to learn how to manage your finances better by taking everything and every penny into account.
So, do some spring cleaning and slash expenses wherever you see an opportunity and especially if it’s something that doesn’t affect your life to a great extent.
How to start investing
Now that you have learned and understood how to manage your money wisely and smartly, you can read on for the juicy stuff you have been waiting for. Thanks to NerdWallet, they have compiled a bunch of fruitful advice to start your investing journey to grow your money. While these bits of advice are mainly focused on the stock market, you can apply them to other places as well.
1. Decide how you want to invest in stocks
There are several ways to approach stock investing. Choose the option below that best represents how you want to invest, and how hands-on you’d like to be in picking and choosing the stocks you invest in to grow your money.
“I’m the DIY type and am interested in choosing stocks and stock funds for myself.” Keep reading; this article breaks down things hands-on investors need to know, including how to choose the right account for your needs and how to compare stock investments.
» See our roundup of the best online brokers
“I know stocks can be a great investment, but I’d like someone to manage the process for me.” You may be a good candidate for a robo-advisor, a service that offers low-cost investment management. Virtually all of the major brokerage firms offer these services, which invest your money for you based on your specific goals.
» See our picks for the best robo-advisors
Once you have a preference in mind, you’re ready to shop for an account.
2. Choose an investing account
Generally speaking, to invest in stocks, you need an investment account. For the hands-on types, this usually means a brokerage account. For those who would like a little help, opening an account through a robo-advisor is a sensible option. We break down both processes below.
An important point: Both brokers and robo-advisors allow you to open an account with very little money.
THE DIY OPTION: OPENING A BROKERAGE ACCOUNT
An online brokerage account likely offers your quickest and least expensive path to buying stocks, funds and a variety of other investments to grow your money. With a broker, you can open an individual retirement account, also known as an IRA, or you can open a taxable brokerage account if you’re already saving adequately for retirement elsewhere.
We have a guide to opening a brokerage account if you need a deep dive. You’ll want to evaluate brokers based on factors like costs (trading commissions, account fees), investment selection (look for a good selection of commission-free ETFs if you favour funds) and investor research and tools.
THE PASSIVE OPTION: OPENING A ROBO-ADVISOR ACCOUNT
A robo-advisor offers the benefits of stock investing but doesn’t require its owner to do the legwork required to pick individual investments. Robo-advisor services provide complete investment management: These companies will ask you about your investing goals during the onboarding process and then build you a portfolio designed to achieve those aims.
This may sound expensive, but the management fees here are generally a fraction of the cost of what a human investment manager would charge: Most robo-advisors charge around 0.25% of your account balance. And yes — you can also get an IRA at a robo-advisor if you wish.
As a bonus, if you open an account at a robo-advisor, you probably needn’t read further in this article — the rest is just for those DIY types.
3. Know the difference between stocks and stock mutual funds
Going the DIY route? Don’t worry. Stock investing doesn’t have to be complicated. For most people, stock market investing means choosing among these two investment types:
Stock mutual funds or exchange-traded funds. Mutual funds let you purchase small pieces of many different stocks in a single transaction. Index funds and ETFs are a kind of mutual fund that tracks an index; for example, a Standard & Poor’s 500 fund replicates that index by buying the stock of the companies in it.
When you invest in a fund, you also own small pieces of each of those companies. You can put several funds together to build a diversified portfolio. Note that stock mutual funds are also sometimes called equity mutual funds. (Learn more about how mutual funds work.)
Individual stocks. If you’re after a specific company, you can buy a single share or a few shares as a way to dip your toe into the stock-trading waters. Building a diversified portfolio out of many individual stocks is possible, but it takes a significant investment to grow your money.
The upside of stock mutual funds is that they are inherently diversified, which lessens your risk. For the vast majority of investors — particularly those who are investing their retirement savings — a portfolio comprised mostly of mutual funds is a clear choice.
But mutual funds are unlikely to rise in meteoric fashion as some individual stocks might. The upside of individual stocks is that a wise pick can pay off handsomely, but the odds that any individual stock will make you rich are exceedingly slim.
4. Set a budget for your stock investment
New investors often have two questions in this step of the process:
How much money do I need to start investing in stocks? The amount of money you need to buy an individual stock depends on how expensive the shares are. (Share prices can range from just a few dollars to a few thousand dollars.)
If you want mutual funds and have a small budget, an exchange-traded fund (ETF) may be your best bet. Mutual funds often have minimums of $1,000 or more, but ETFs trade like a stock, which means you purchase them for a share price — in some cases, less than $100).
How much money should you invest in stocks to grow your money? If you’re investing through funds — have we mentioned this is the preference of most financial advisors? — you can allocate a fairly large portion of your portfolio toward stock funds, especially if you have a long time horizon.
A 30-year-old investing for retirement might have 80% of his or her portfolio in stock funds; the rest would be in bond funds. Individual stocks are another story. A general rule of thumb is to keep these to a small portion of your investment portfolio.
» Got a small amount of cash to put to work? Here’s how to invest $500
5. Focus on the long-term
Stock investing is filled with intricate strategies and approaches, yet some of the most successful investors have done little more than stick with the basics.
That generally means using funds for the bulk of your portfolio — Warren Buffett has famously said a low-cost S&P 500 index fund is the best investment most Americans can make to grow your money — and choosing individual stocks only if you believe in the company’s potential for long-term growth.
The best thing to do after you start investing in stocks or mutual funds may be the hardest: Don’t look at them. Unless you’re trying to beat the odds and succeed at day trading, it’s good to avoid the habit of compulsively checking how your stocks are doing several times a day, every day.
Now that you have learnt the fundamentals of managing your money and how to start investing, you are ready to start your investing journey to grow your money!
More information about:
- EU and China leaders meet to agree on investment deal
- Political stability Malaysia vital in attracting foreign investment – Dr Wee