Finding cash to invest is a challenge for many people but it is a challenge that can be easily overcome. Many authors will tell you that you just need to give up “small” things each day or once a week to find the cash you need to invest. In my experience, those people who drink a latte or espresso every morning on the way to work depend on that cup of java to stimulate them and get them going. While eliminating the latte or espresso might put a few bucks in their wallets; it might also affect their daily performance in a negative way – so if you’re one of those people, don’t give up your latte or espresso.
Many years ago I first heard the phrase “pay yourself first”. Over the years, that phrase has been used repeatedly in articles, books, and in conversations about finance. I can tell you from personal experience; it’s easier said than done…at least it was, until the Vice President of a major company taught me how to pay myself first in a way that would be easy on my wallet. I still adhere to his advice, and it’s even easier today because of the internet.
There are three ways to pay yourself first:
- Use an online, interest-based savings account
- Take advantage of employer-sponsored retirement accounts
- Open a regular savings account at a nearby credit union or bank
Now don’t throw your arms up in the air just yet. You may think that you have heard all this advice before and you don’t believe it works, but the method I am going to share with you here, will work.
The most important aspect of gathering cash for investments is that the way you do it has to be specifically focused on investing. A saving account is a temporary parking place for your money that will be used to invest. While your nest egg many grow in value sitting in the bank, the interest earnings are very minor. The end result you really want can only be accomplished through investing, and that means safe investing is very effective, very profitable, That is where your cash will grow significantly…once it is invested in stocks, ETFs or mutual funds.
Generally speaking an online savings account will earn substantially more interest than it will in a ‘bricks and mortar’ bank or credit union (e.g. I have an online savings account today that is paying 1.00%. My friend’s credit union account is only paying 0.02%. Wow, what a difference.)
Savings accounts are for future market investments. ll need anywhere from $100 to $2,500 to get started. The actual amount depends on the brokerage firm you choose and the type(s) of investments you choose. Once you have opened an account, subsequent investments are best made in increments of $500 or more and you can easily manage your investments with personal investment software.
For the reasons stated above, you should have a savings account that is dedicated to accumulating investment dollars. In other words, a savings account separate from any other savings accounts you may have. Good money managers have several savings accounts – each with its own purpose and goals. I have six – yes six savings accounts set up for:
- Emergency Funds
- Insurance – so I can pay life insurance annually instead of monthly
- Christmas – so we don’t dent the budget when buying presents for family and friends
- Travel and Vacation
From some of these accounts I put aside what I need to meet a certain goal or to pay bills. I divide the amount of the annual costs by 12, and then commit to putting that amount into that savings account each month. When the bill comes due the money to pay it is there.
For an investment account, I suggest depositing either a set amount from each paycheck, or better yet, a percentage of each check into the investment account.
When I first suggested this to my daughter a few years back, she said, “I can’t spare any of my money.” And this is what most people believe, but you can do this, and this is how. Start slowly…very slowly and then build. The key is to set up an automatic deduction from your checking account.
Here’s an example: Let’s say you make $30,00 a year and your net take home pay is $850 every two weeks or about $1,700 a month. Start with an automatic deduction that is equal to 1% of your take home pay; in this case $17. Chances are you won’t even notice it’s gone. If you get paid very two weeks you could arrange for the deduction to be taken out bi-monthly…in this example that would equate to just $8.50 coming out of each paycheck.
After two or three months, change your automatic deduction to 2% (or in this case $34 a month). Because you’ve already adjusted to the first $17 being taken out, it will only seem like $17 is missing from your checking account every month, and again, you won’t miss it. Plan to increase your automatic deduction every three or four months. Set your sights on eventually saving at least 10% or 15% a month. It may take a few years to get there, but you will get there and you will have the dollars you need to invest in the markets. By the way, my daughter gave this savings plan a try, and now, she is a believer. This is how to find cash to invest. Making an automatic deduction into a high interest savings account is the key to accumulating money for investing and growing your wealth.
Raymond M.F. Dominick is the author of “Invest Safely and Profitably” (Your Success Guide), available from Amazon.