“Rule #1: Never lose money; Rule #2: Don’t forget rule #1.”
- Warren Buffet
Becoming financially free does not happen without a commitment to saving and investing earnings. There are other factors of course, like managing debt, but without a well thought out strategy to make your money work for you, the likelihood that you’ll achieve your long-term financial goals is dim.
Saving and investing must become a habit and the best way to start is to mimic those people who have been most successful at it. It takes persistence to find room in your monthly budget to put money away and avoid the temptation of splurging on indulgences. A habit takes time and consistency to take root, so if you’re serious about building wealth, try implementing some of these ideas that successful investors use to grow their savings and investments.
Become Future Oriented
The very first thing you must do is to adjust your mindset. To be a successful investor, you must be future-oriented. Stop thinking about just today and instead - in terms of your financial goals - think about your long-term goals. If you have even a little money left over every month, instead of letting it burn a hole in your pocket and spending on indulgences that only offer temporary enjoyment, think about what that extra money could grow towards. What could that extra money be useful for in six months, a year, or ten years?
Successful savers and investors are future-oriented. They contribute their financial capital toward savings and investing goals that are important to them. Try making a list of future goals that would require an investment of capital, such as retirement or your child’s education and begin planning your savings and investments with these goals in mind.
Set Goals
Once you’re clear on some of the long-term goals that are important to you, you can begin to set some goals for achieving them through budgeting, saving and investing. Determine what these savings and/or investing goals are and add them to your budget just as you would your groceries or utility bills. By doing so, you’ll begin the habit of allocating funds for your savings and investment goals and you can plan your budget accordingly.
Your goal amount(s) can be whatever you choose, but make sure it’s an amount that’s manageable and will keep you motivated. This will help you maintain the habit, which is one of the most important aspects of saving and investing. Think about a total amount you need to have saved by a certain date, and work backward to determine how much you’ll need to save on a monthly basis to achieve your goal.
Be Consistent
Consistency is the mother of mastery, and this is especially true when it comes to saving and investing. The most successful savers and investors make it a habit to stick to their goals year after year. This is why it’s so important to be thoughtful about your goals in the beginning and to make sure they’re manageable and you’re motivated to achieve them. Otherwise, it’s easy to slip up and lose the gains you’ve made from consistent effort. A good way to do this is to automate your savings and investing. It’s easy to set up automatic transfers for predetermined amounts so that you don’t even have to think about it. Also, make sure to revisit your goals at least a couple times per year, to account for any changes in income or expenses.
An important savings strategy is creating and maintaining an emergency savings fund. Remember, successful savers and investors are planners, and as such, they understand that financial emergencies occur - in fact, they plan for them - and they make sure to set aside money to account for these occasions. Try starting off by setting aside $1,000 which would be helpful in the event of an unexpected car repair, for example, then aim for putting away three to six months’ worth of living expenses in the event of a job loss or if extended time away from work becomes necessary. It will take time to build up an emergency savings of this amount, so be patient. Once you do, the peace of mind you’ll gain from knowing that you’re prepared for almost any kind of financial emergency will be immeasurable.
Pay Yourself First
Successful savers and investors pay themselves first. What this essentially means is you pay yourself by setting aside a portion of your income before paying bills. Experts differ on the amount this should be, with many feeling that 10% of your income is sufficient. Depending on your income and other financial obligations, however, this may be too high or too low. It’s up to you to determine what percentage of your income you can afford to set aside. As your income grows, and you work to lessen your debt load, you can always adjust this amount. The key is to pick an amount that works for you and stick to it, month in and month out. Getting in the habit of paying yourself before spending any extra money will pay off over time.
An important trait of all successful savers and investors is the ability to live below their means. You can’t work towards your future goals if you spend everything you earn. You must consistently spend less than you earn on a monthly and yearly basis. The flip side of this is that if you’re spending more than you earn, chances are you’re slipping further into debt. If you fall too far into debt and cannot keep up with payments, then you run the risk of damaging your credit, which leads to accumulating penalties, and losing money to interest or fees, and digging a financial hole that is difficult to get out from. Successful savers and investors know that missing payments is essentially throwing money away. When you miss a payment, late fees are added to the amount you owe, as well as interest charges, compounding the problem.
Remember, achieving wealth is a lifelong endeavor that requires patience and commitment. Follow the advice of some of the most successful savers and investors, and soon you’ll begin to realize some of the same kinds of advantages, as your financial life improves and expands.