Save and Invest with Modest Amounts

Edited by Vanessa Alexandra Avisado, Eng, Lynn

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A lot of people are under the impression that saving and investing money is only for those who have extra funds. You've probably heard people say that they don't have enough money to save, let alone invest. However, experts will take this statement apart and demolish it, pointing out that first of all, savings and investments are needed precisely by people who have barely enough. Second, they will say that unless you are totally destitute (and need to find help quick), you can find money in the strangest places within your current situation.

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For most people the critical issue is how to come up "extra" money to accomplish the seemingly impossible feat of saving and investing. How can ordinary people move beyond a situation where everything they earn goes to bills? This is the question that you can begin to discover the answers to if you read on and take a look at the practical pointers the financial gurus share with ordinary wage earners who want to save and invest with modest amounts.

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Setting the Stage

Before you can earnestly begin saving and investing, there are some very basic truths or principles that you have to be open to embracing. Not all of them are easy to accept, but their application can help dismantle many poor lifestyle choices that prevent people from taking control of their finances.

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  1. 1
    You can't get away from the math
    Many people only deal with the math when they have to sit down and balance their checkbooks, and with online banking, even this is not the chore it used to be. You have income and you have expenses. In order to save and invest, you need to figure out how to either increase your income or change the landscape of your expenses (a kinder way of saying spend less and scrap out some items).
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  2. 2
    When financial gurus talk about reflecting, they are talking first of all about taking stock of your usual expenses and figuring out which ones you need to either minimize or get rid of completely. Then, when the most frequent and damaging non-essential expenses are identified, some inner assessment has to take place. This will help unearth the triggers that sabotage your finances.
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  3. 3
    Create a realistic budget
    Going through life without a budget is like navigating a ship without a map. Get a budget together - and make sure you give yourself an allowance for some fun.
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  4. 4
    Have a financial goal
    After reflecting and polishing your addition and subtraction skills, setting a goal is the next step you have to take. It is a baby step, but once you achieve that first realistic goal, you will be ready to conquer bigger goals that will set you on the road to better financial management.
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Getting Started

Here is how you can begin to save even if you only have a limited income. You won't become an overnight millionaire by following these suggestions, but you will be able to take better control of your finances.

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  1. 1
    Take a comprehensive review of your finances
    Unless you square your situation, you won't get anywhere. Without knowing what your starting point is, you won't be able to make the necessary interventions that will enable you to save. A comprehensive view of your finances means looking at all your monthly expenses and bills, looking at your income, looking at your credit card debt, and your assets.

    This is a step people rarely take. Most people will only go as far as paying bills when they come, and checking if their credit card is "still good". Does this sound familiar? If it does, it is time to change your approach to your finances.
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  2. 2
    Resolve to bring that credit card debt down
    Your credit card debt can be like a constantly hungry crocodile, eating up your hard-earned money. If you have been making the minimum monthly payments on your credit card (or cards) you will find out that it could take years before you make a dent on the principal amount of your debt. When you make minimum monthly payments, practically every cent you pay goes to interest.

    How do you go about bringing down credit card debt? Here's a plan:
    1. List all your credit card debts and the corresponding interest rates. (This may hurt a little, but it will be good for you.)
    2. If you have several credit cards, find out which one charges the lowest interest rates. Then, ask the other credit card companies if there is a way for them to bring down their rates to the same level. This actually happens: Some credit card companies will shave of 1 to 2 percent of the interest rate they are charging.
    3. Weigh the possibility of consolidating your debt at the company that gives you the lowest interest rate.
    4. Rank your cards according to interest rate, from highest to lowest.
    5. Begin to pay whatever you can (over and above the monthly payment you make) to the card company that charges the highest interest rate. In the meantime, continue to pay the minimum monthly amount on the others.
    6. Find out if you qualify for a balance transfer card (or a credit card balance transfer) that offers 0 percent interest or very low interest for 6-12 months. This will allow you some time to get a better grip of your finances.
    7. If you do get this new low-interest or interest-free card, do not make any new purchases on it. Instead, move whatever high-rate debts you have and try to pay them off within the no interest period.
    8. Tackle the costliest debt first, and then move on to the next. Continue doing this until your highest debts are at zero balance and the other cards are at about the same level.
    9. Ease off on credit card use. Research has shown that people are more willing to buy non-essentials and pay as much as 20 percent more for them when they are using credit card. Paying in cash (or through a debit card) actually hurts more, and it makes people think twice. Put your credit cards someplace where they are safe, and use them only when you have a good plan for doing so.
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  3. 3
    Look for hidden money
    Most people will say that they really want to save, but there's just no money left after regular expenses. However, there is always hidden money somewhere. For example, if you go through your expenses for the past three months (or even just the past month), you will see that there are a lot of items you spent for that you shouldn't have.

    If you examine your spending habits you will have to admit that there could very well be over $100 worth of expenses that were not necessary. Here is what you need to do:  
    1. Print out your credit or debit card statement and highlight all the expenses you could have done without. (Ouch, ouch, ouch!)
    2. Take a good look at your utility bills and resolve to bring them down by 10 percent or more. Refer to the web page of your utility provider and look at the programs and money-saving tips they share with their clients.
    3. Make your home or apartment more energy efficient; replace bulbs with energy saving ones, weatherproof doors and Windows, etc.
    4. Take a look at your phones and cable packages; change your plans to lower ones if you can. If you have a landline that you rarely use, get rid of that account.
    5. Try to bring down mileage to under 15,000 per year to reduce car insurance premiums.
    6. If you need to have major medical procedures done, try to get them done within the same year so you make full use of your deductible.
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  4. 4
    Recognize the difference between savings and investments
    There is a big difference between the two, and you need to have both. This advice goes not only for married people in their 30s or 40s. Even young people need to develop a healthy perspective towards saving and investing.

    Take note of the following frequently overlooked facts:
    1. Anything that goes towards an anticipated expense is savings. Funds you need to have available in case of emergencies should go to your savings account. If you are thinking of buying a house in the not-too-distant future, the money you set aside for that also goes to savings.
    2. Savings need to be put into the most secure account - definitely low risk! You also need to have relatively easy access to your savings. With savings, your main concern is security, not income.
    3. Money you won't be using for longer than five years is money you can and you should invest.
    4. You need to look for the best ROI for your investments. This means you need to begin studying market trends and stocks, among other things. If you feel the savings and investments money you have is too little for you to need such lofty information, that is where you are wrong. You will need this knowledge sooner than you think.
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  5. 5
    Get down to the nitty-gritty
    Create a realistic budget that includes setting aside a definite monthly amount for savings and for investments. Set this amount aside before you begin spending money, not after. Put these in separate accounts if need be, and live on the balance. If you have done your review of expenses, you will know that there are corners you can cut. Some people start with a savings and investment plan of as little as $20-50 a month, which they are able to afford after reducing other expenses. Do you think that is a ridiculous amount? Personal finance advisers certainly don't think so.
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  6. 6
    Begin to invest
    Yes, there are ways to invest the modest monthly amount you are able to squirrel away from unnecessary expenses. However, as previously mentioned, you will have to read, and study, and possibly get advice about the following options:
    1. There are companies with stocks you can buy for as little as $50-100. Buy stocks from those that have no-transaction-fee DSPs (Direct Stock Purchase Plans).
    2. Once you have accumulated stocks in the company of your choice, look into their DRIP (Direct Reinvestment Plan) so that you get additional shares of stock when dividends are declared.
    3. Look for mutual funds that allow you to invest $50 or less every month.
    4. Choose an index fund that accepts an initial investment of $500 and allows you to add money when you want to, for as long as you want to.
    5. Invest in a CD (certificate of deposit) which will yield approximately 5.5 percent per year. If you have $2000, your money will have earned $110 at the end of the year.
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All the above investments involve modest amounts that are attainable for most people - even those who presently think of themselves as cash-strapped. If, within six months, you get to the point where you are able to invest in all the four options mentioned, congratulations! You would have succeeded in starting to build your financial portfolio. Once you are able to do this, you will be ready to achieve more. In the meantime, begin studying.

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Categories : Noindexed pages | Financial

Recent edits by: Eng, Vanessa Alexandra Avisado

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