- You Have to Cut Spending to Save
You’ll find plenty of politicians who claim the only way to save is to cut. There is a grain of truth in that. When it comes to your own household budget, you have to live within your means in order to have the money to set aside for savings. That could mean cutting your daily trip to Starbucks to once or twice a week instead. Perhaps you can eat in more to bring down your monthly food costs. The little sacrifices you make today can result in a big benefit down the road when you really need to use those savings
- You Should Take Advantage of Employment Matching
If you happen to work for a company that matches your 401(k) savings, then it is in your best interest to funnel as much money into that account as possible. You’re basically going to get a bunch of free money from your company. That could translate into thousands of extra dollars each year. Are you really going to leave that kind of money on the table?
The employee matching of your retirement savings is a way to earn with that money. There are other options as well, such as money market accounts or certificates of deposit. With these types of saving accounts, you’re still putting your money aside but you’re locking it down and letting it earn interest. You’ll find that most of these savings accounts can provide better rates than the plain bank savings account.
- You Can Schedule Your Savings
Most banks allow you to set up a savings withdraw from your checking account. You can set up a specific amount to come out weekly or monthly. Those savings will start growing and you won’t have to lift a finger.
- When You Buy Stocks, You’re Becoming a Company Owner
A popular form of investment is a diverse stock portfolio. A stock is an ownership share in a company. The more stocks you own, the greater your stake. The goal of every publicly held company is to pay its shareholders’ dividends. Those are based on how much profit is generated by the company. Of all the possible investments you can make, stocks are the most volatile. Your fortunes rise and fall with the company.
- You Can Invest Your Money in Money
Another form of investment would be on a currency exchange. This is where you would be investing in one currency while selling in another. That means your trades are happening in pairs. As with the stock market, you can track the currency rates throughout the day to see how your investments are doing.
- You Can Invest in a Bond for a Guaranteed Return
Investing in a bond is like loaning the government money. A city can issue bonds to build a stadium or schools. That loan is repaid with interest over a fixed period of time. Bonds are thought of as secure investments. In other words, you know just what you’re getting and when you’ll get it.
- You Pay for the Privilege of Investing
When you enter into any type of investment, you’ll be paying to make that investment. This will be a service or brokerage fee given to the person or entity that is trading on your behalf. These fees can vary between firms and are often small percentage points. Still, it is money taken off the top of what you put in. It doesn’t matter if your investment suffers a loss. You’ll still pay those fees.
- You Have to Pay Taxes on Your Investment
Just like building a house, you have to take into account how taxes will affect your investment. The more you invest in a home and in an investment, the more you will typically have to pay in taxes. Suppose you invest $10,000 in the stock market and after five years, you have earned $30,000. Nice work. Of course, that is how much you’re worth on paper. To actually get that money, you have to sell those stocks. Once that happens, you are creating a capital gain. That is something that will be taxed by the IRS. Bottom line: The more you earn and take out as cash from your investments, the more you’ll have to pay in taxes.
Many folks opt for a balanced financial portfolio that has both savings and diverse investments, including stocks, bonds, and mutual funds. It also helps to have a plan in mind for your money. Are you building your retirement nest egg? Saving for a house? As with most things in life, it helps to keep your eye on the goal.
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