31Aug

I Want to Invest… But How Do I Start?

A common misconception is that you need a lot of money to make money. If you have wads of cash it certainly helps but everyone needs to start somewhere. Unless your lucky (or unlucky in same cases but I won’t name names) to receive a capital injection from your parents, you will most likely need to start from scratch.

The key to building wealth, and the major factor that determines how quickly you grow it is your monthly savings… To increase your savings you can only do two things. Increase your income or decrease your expenses. Lets look at these in a little more detail.

To increase your income you can do one or a combination of the following;

  • Increase salary and earnings – This could be from working multiple jobs, getting pay rises and bonuses. The major limitation is your time is not a never ending resource (although your boss may think differently) and not everyone works in occupations where you are eligible for bonuses and commissions.
  • Invest your savings properly – This could be as simple as finding the best interest rate on your cash or looking at alternative investments to your high interest account. There are plenty of options out there to help you boost your savings. Of course, the higher return you shoot for, generally the higher the risk you take.
  • Borrowing Money – If you have your money and then you add someone elses (could be a bank, parents or really nice rich friends) you increase the chance of building your asset base. Be careful though, the risk runs both ways.

 

To reduce your expenses, you might look at the following;

  • Spending less – This doesn’t have to mean doing a detailed budget in excel, but you may just curb your discretionary spending. This is a worthwhile exercise but the limitation is there is only so much you can reduce your spending before you end up eating two minute noodles every night
  • Pay less tax – This is a great one because it mean you have to spend less. As you get taxed on your income before you receive it, you should firstly make sure you lodge tax returns but even more important is to put the strategies in place to reduce your tax
  • Invest wisely – A lot of people make investments that actually end up costing more than they receive back. Not only does it eat away at your cash flow but mentally it doesn’t put you in the best mood to keep investing.
  • Remove unnecessary payments – These are the monthly expenses you have paying. It might be credit card interest, so you should look to roll to another or late payments of bills so you need to setup direct debits.

 

They key to starting to build wealth is to increase your savings. To do this, there isn’t the magic wand you can just wave to magically create some monthly savings, it will take combination of the above. You will be surprised how quickly you can ramp up your savings… it is like a snowball.. starts of small but with some momentum it can build up pretty quickly.

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