Before you start investing, it’s wise to get your savings in order so you don’t stretch yourself thin. Here’s how to save money so you can invest for your future.
The right investment portfolio can elevate your savings potential and help you meet your future goals. But if you invest without a well-padded savings account to back you up, you risk losing everything.
As a general rule, you should divide your savings into short-term and long-term goals. If you think you’ll need the money within five years, it’s usually safer in an FDIC-backed account like a high-interest savings or money market account.
On the other hand, if you think you won’t need the money for at least five to 10 years, it may make more sense to invest and accelerate your savings. Historically, the stock market averages about 10 percent returns annually, which makes it a great place to grow wealth and beat inflation.
Before you start investing, you should prepare your financial safety net to see you through emergencies. Most financial advisors suggest that you should set aside at least three to six months’ worth of household expenses in an FDIC-insured account.
As a rule, experts also advocate saving 15 to 20 percent of your monthly income. Once you have a well-stocked emergency fund, you can split your budget into two categories: saving and investing. You may find it helpful to use online calculators, such as a retirement calculator, to set monthly targets for each.
Saving and investing can help you build the future you want. But if you’re not sure where to start, these quick tips can help.
First, you need to know where you’re going to put your money. While not all high-interest accounts outpace inflation, many, such as money market accounts, can still reduce the effects.
Saving doesn’t happen overnight. If you’re on a limited budget, start with a few dollars a month, and then work your way up to larger sums.
It’s easiest to pay yourself first if you set your savings contributions to automatic. With regular monthly contributions, you’ll be ready to invest before you know it.
If you want to boost your savings, start by slashing your living expenses. Whether you move to cheaper housing or start cooking at home, small adjustments add up fast.
You can also accelerate your savings by increasing your income. Every dollar you earn at a second job or from your side hustle is another dollar closer to meeting your goals.
Anytime you get a raise, bonus, cash gift, or inheritance, set some in your savings account. Just don’t forget to treat yourself from time to time.
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