Are you wondering how to save and invest more for the future? If so, you came to the right place. Rather than telling you that you need to increase your income and cut your spending, we’ll offer a few insightful tips so you can start saving more.
Whether you’re a young adult wanting to learn more about investing, or a mid-career person looking to accelerate your retirement savings, these tips can help you strengthen your financial position, boost income and invest wisely.
Here are the ideas to help you become money-smart.
1. Start with paying yourself first
To pay yourself first means simply this: before you pay your bills and cover all of your needs, set aside a portion of your income to save for your retirement and other life goals (etc. college, house, etc.). Put the money into your retirement plan, IRA, or savings account.
Retirement, in particular, is a big deal. It’s never too early to start saving for it. The money you save and invest for retirement is growing at a compounded interest rate, so you may wind up in a much better financial position when you retire compared to today.
2. Never leave cash sitting in 0% interest rate accounts
Even though the US government interest rate is at its record lows, hovering just above 0%, you can still get over 1.5% interest on your savings accounts, and even higher on certificates of deposit (CDs) and money market accounts.
Remember the rule: if you can pocket the interest, regardless of how large or small it is, don’t give it away to a bank!
3. When it comes to investing, simplicity is your friend
The fewer stocks, mutual funds and ETFs you own, the easier will it be for you to manage your investments.
Many retirement plans now offer target-date funds; you can make a single investment into a target-date fund and not worry about managing it.
To learn more about target date funds, check out this guide.
If you’re looking to construct your own portfolio, and control the mix between US and international stocks, and bonds, you may want to learn how to do this simply using a three-fund portfolio strategy. You don’t need a finance degree to do this. It is as simple as selecting three funds that you will use to manage your money and deciding on the mix among them, which is explained in the “lazy” portfolio guide.
Pro tip: You can try Finny Simple Investing Guides and Stock & Fund Analysis Tools for free for 7 days. If you don’t understand a concept, or want to get a perspective on the money challenge you’re facing, you can ask a Finny Coach and get on-demand answers to your financial questions.
4. Check your investment costs
Whether you’re talking about stocks and bonds, mutual funds or 401k retirement plan management fees, virtually all investments involve costs that investors should understand.
Now that most major brokerages have implemented commission-free trading, the major trap for investors is buying expensive mutual funds or ETFs. Ideally, you should buy funds that don’t have any sales loads or 12b-1 fees (i.e., sales and distribution fees) and have expense ratios below 0.25%. Failing to do so could cost you thousands of dollars.
You can quickly check out red flags indicating excessive fund fees and expenses using the quick take analysis tool for stocks, ETFs and mutual funds. Take a careful look at the cons list of investing in a given mutual fund or ETF and understand the downsides of the investment you’re about to make.
5. Understand where big bucks are going
It’s a well-known fact in the investing world that big money follows efficient investment choices. That means, large assets are invested in funds that are cheap, perform according to the main market indexes, and have plenty of liquidity (i.e., you can buy or sell them at any point in time).
Study the list of top ETFs and top mutual funds to find out where the smart money goes today. If you don’t understand the differences between individual funds, you can always compare them and figure out which ones are the right choices for your portfolio!
6. Understand what you’re getting yourself into with any new investment
We covered how to select mutual funds and ETFs, but when it comes to stock investing, things can get a lot more complicated. The reality is, nobody really knows how the price of a single stock will evolve over time.
Buying stocks is typically well suited for advanced investors. You should understand that buying a share means taking ownership in a company.
Finny Score tallies up the pros and cons of investing in a certain company using a single score between 0 and 100, based on quantitative analysis. A perfect score of 100 means that the stock might be a good buy, based on valuation metrics, financials and current share price. A “0” means just the opposite.
Use Finny Analysis and Score as the starting point of your company (or fund) research. Sizing up and understanding the good and the bad about investing in a single security is an essential part to becoming a good investor. Just remember that the perfect score “100” doesn’t indicate your investment will generate a positive return, just like “0” doesn’t mean your investment will be a failure!
7. Remember that chasing trends can destroy your wealth
Most recently, we’ve seen many investors burn their savings by buying the United States Oil Fund (USO), thinking they are investing in oil. Just because a fund has the word “oil” in its name, it doesn’t mean you as an investor are buying oil as a commodity! In fact, you can check the analysis of USO and find out it has many negatives. Its Finny Score is 0.
If you’d like to better understand trends in the investment world, and get savings and investment tips on a regular basis, you may want to sign up for a newsletter The Gist that may give you an idea of what to do with your money next.
8. Remember that automation is your friend
Linking all your accounts into a single dashboard is the key to being able to understand your financial situation. When you have a bird’s eye view of all your assets (e.g., your house, savings, and investments), you can start thinking about what you can trim out and what accounts you can consolidate to simplify your money management.
9. Consider reducing the number of savings and investing accounts you have
One simple hack you can do is to consolidate and reduce the number of savings and investment accounts you have. You can have as few as a single savings account, a single retirement account, and a single taxable investing account. Within each of those accounts, you can set up sub-accounts for specific purposes (e.g., a rainy-day fund within your savings account).
Retirement accounts are usually the biggest source of account gluttony, because it’s easy to set one up with a small amount of money. Once established, most people don’t want to spend the time necessary to close out the small account and transfer the money to another account.
10. Stick to your investment plan
A stock market dip such as the one we experienced recently can be a good buying opportunity for steady investors who want to add to their portfolio. Intuitively, you want to run away when the market dips, but what you should be doing is continuing to invest.
The one exception we could think of is, if you have high-interest debt, you should look to pay it off as soon as humanly possible.
Review your investment strategy once or twice a year, and don’t let headlines throw you off-track when it comes to your money management.
11. Don’t be afraid to ask for help
Finally, if you feel overwhelmed about growing your money and you feel like you can’t do it yourself, then find a financial advisor or a coach who’s the right match for you. There are more affordable alternatives to financial advice for those people who are just looking to get on-demand answers to their financial questions. Finny offers such an alternative.
Some people are meant to manage money on their own; some are better off when they seek professional help. Do what’s right for you.
Which idea are you trying first? What ideas are you already doing to improve your finances? Leave a comment and let us know.