If you are thinking of investing, but don’t know how to save money to invest, then today we are going to discuss using the money you are already putting aside as savings as capital to earn more.
The rate of your savings is the key when talking about earning interest on your savings. For the first ten years after you start to invest, the rate at which you save will have the biggest impact on your returns. You can overcome any bad investment decisions that you make at first if the amount you save is hefty enough.
“Try to save something while your salary is small; it’s impossible to save after you begin to earn more.” – Jack Benny
Does that mean you need to worry if you can’t afford to save too much right now? I don’t think so. The important thing to pay attention to, at this stage of your investments, is whether you can increase your savings rate over time. There are a few ways to do that.
You can dedicate at least half of your raises to saving up for investments, or increase the rate over the period of five to six years, once your income begins increasing. Increasing your savings rate by as little as 5% every year for a period of ten years will result in sizable returns on investments.
The returns you get in the early stages of investments will not have much impact on the final result. In this stage, you can afford to make a few mistakes and still come out on top as long as your savings rate is maintained.
“It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.” – Robert Kiyosaki
Making small changes to increase the amount you save up requires a lot of meticulous planning. This is why I often suggest keeping a set time aside when you plan your finances. Being clear on what your financial goals are and understanding the incoming and outgoing money flow will help you create a tight budget.
You will learn to identify problem areas that you can work on and also find solutions to tackle those problem areas. This will give you a chance to save more by budgeting and running a tight ship with your expenses.
To save more, initially, you have to live far below your means so that you can maximize your savings rate and the part of your net income that you put toward your savings and investments.
People always will tell you that it takes money for you to make money. It is more or less the truth. When it comes to investments, the more money you can put toward it, the more chances you have of generating a great amount of passive income. The same is with businesses, the more you can put into its launch, the greater you have the odds of success.
This being said, you cannot discount research, learnings, and your planning, but does play an important role. Learn to increase your rate of savings so that you can invest more.