Where to find money for investment and how to invest so, so that financial well-being grows? We have prepared answers to these and other questions in a special series of materials. In this part, we will dwell in more detail on the first steps from consumption to investment..
Why you need to invest
Personal finance life cycle
Throughout our lives we deal with money. We earn and spend them, trying to accumulate and increase, think about, where to get them and where to put them later. With all the variety, the financial history of most people is as follows::
After starting work, income grows, peaking at the age of 35 to 50 years, after which it gradually decreases. This means, that capital is needed for a comfortable old age. There is a common expression: “In the first years, the student works for the record book, and on the latter, the record book works for the student ". The same is true for investing.. Investor first works for capital, so that later the capital will provide the investor. And the sooner you start your investment journey, the more abundant life you can afford in the future.
Financial pillow
Sometimes circumstances force us to, to spend an unscheduled amount, exceeding monthly income. Emergency treatment, car or home repair, loss - all this can unsettle the financial rut. In such a case, it is useful to have a cash buffer in the amount of income for 3-6 months.. This pillow will not only provide protection from financial hardship, but also psychological comfort due to the very fact of its presence.
Passive income
Buying an apartment and renting it out is the simplest way of additional passive income. When part of the monthly costs is covered by income, not dependent on direct labor, this significantly improves the quality of life and psychological comfort. Real estate is an expensive asset. But you can receive interest on bonds or dividends on shares from much more modest investments.. Amount 1 RUB million, placed under 8% per annum, can bring a little more 6 500 rub. monthly. Any ideas, how can you spend this money?
Save up for Tesla
Used to save up for a Ferrari, now "green" Tesla is in vogue. Basically, any purchase can be submitted here, which does not fit within the monthly budget, be it an apartment, machine, country house, travel to Europe or Play Station 5. You can save more efficiently, if you save money at interest. Over long distances, the compound interest effect will be especially useful..
From consumption to investment
The recipe for accumulating funds is simple: need to earn more, what to spend, and invest the difference. Following this pattern, it is easy to identify three main ways to improve the efficiency of raising capital:
● Reduced costs
● Increased income
● Increased return on investment
Nothing complicated in theory, but in practice it is not so easy to ensure a stable delta between income and expenses. There would be money, and where to spend them - there is always. Excess is rarely formed, therefore it is necessary to create it artificially.
To do this, a contribution to the piggy bank must be made immediately after receiving income.. Then you can no longer spend everything, what they earned. Make a rule: postpone immediately after receiving a salary / bonus / business profit 10% or another comfortable amount. From unplanned income, such as awards, presents, heritage, sale of unnecessary things, it is recommended to postpone 50% to 100%.
This simple rule is key in the capital formation process.. It allows you to develop a healthy habit of saving money and planning large purchases..
What do we spend our money on
It is very important to start keeping statistics of income and expenses.. This is a routine business, but today there are tons of tools, which facilitate this process. A wide range of mobile applications simplifies reporting. Most of them provide an opportunity to visualize a chart of expenses and assess, where are the leaks, through which cash flows out of your wallet.
In general, all expenses can be divided into three broad categories:
1. - costs, which are stable from month to month: housing and communal services, loan payment, Internet and mobile communication charges, fitness subscription, etc..
Reconsider the tariffs for mobile communications and the Internet - often they can easily be reduced by 10-20%. On gasoline, fitness and other narrow categories you can often find cards with an attractive cashback of 5-7%. Estimate the possibility of refinancing a loan at a lower rate.
The savings here will be small, but it does not require significant effort. It is enough to review your fixed costs once a year and optimize them like this, to spend less without significant loss in quality of life. The money saved can be added to the amount saved.
2. include those expenses, which repeat from month to month, but their size may fluctuate: meal, entertainment, clothing, inexpensive equipment, car maintenance, gifts for relatives, etc..
This is where the greatest potential for cost savings lies.. This is especially true for the categories "food" and "entertainment". According to statistics, impulsive purchases in the style of "treat yourself to a treat" or "buy that cool thing over there" take about 10-15% of the monthly budget. It is often more rational to postpone this money., to spend on more meaningful things.
Budgeting is a good tool here.. Deposit on these categories a certain amount for a month and divide it by 4 weeks. Then, if possible, this amount can be carefully reduced, discarding useless waste and finding stores with lower prices.
3. include purchases, that do not fit within the monthly budget: expensive furniture and appliances, turputevka, automobile, real estate.
These things can affect the quality of life much more., rather than household expenses. However, it is for them that there is often no money left., when there is no habit of saving part of the income. As capital grows, such acquisitions will become more affordable..
Before making large purchases, you should carefully study the market and choose the best offer in terms of price / quality ratio. If earlier it could take a long time, then now all the information can be obtained, abandoning social networks for an hour and carefully looking over the offers on the Internet and thematic blogs.
Do not hesitate to ask for a discount - very often there is an opportunity to buy cheaper, even when it comes to buying from a large retail chain. Sometimes you just need to ask. In the case of expensive purchases, plus or minus 1% already matters.
We figured it out, where can free money come from for investment. About that, how to set financial goals and invest so, to be easy to reach, read in the second part of the cycle, dedicated to personal finance. Follow our publications!
