Let’s learn the secrets of how to invest money wisely. One of the secrets to becoming a successful investor is taking calculated risks. It allows you to build your wealth over time.
If you are new to investing and want to know how to invest money wisely, you have come to the right place. There are certain tips that make all the difference.
Practice the following principles to invest money wisely and retire at an early age.
1. How to Invest Money Wisely by Separating Your Savings and Investments
The first thing that you need to do to invest money wisely is separate your savings from investments. It is important that you understand that they are both different things. Unlike savings that you keep aside for an unexpected emergency or a planned purchase, investments focus on long-term growth.
Create a separate savings account so that you can immediately tap into it when you incur a huge expense. Only save 3 to 6 months’ worth of living expenses. The rest should be invested.
2. How to Invest Money Wisely by Investing Based on Long-Term Goals
Although market values swing constantly, they usually go up over an extended period of time. It is due to this reason that investing is recommended for at least 3 to 5 years. You must set money aside so that you can earn enough to retire or send kids to college. Generally, you should invest at least 10% to 15% of your monthly income.
3. How to Invest Money Wisely by Starting Sooner Than Later
The amount of wealth you can accumulate through investment depends on how soon you can start. As the saying goes “the early bird gets the worm”, it could not be more accurate when it comes to investment.
When you invest early, your money would grow considerably with time. Catching up would only prove more expensive.
4. Take Advantage of Tax Accounts
A tax-advantaged account such as a workplace 401(k) or an IRA allows you to avoid taxation. Even if you are an entrepreneur, you still have plenty of options. By investing in a retirement account, your tax bill would be reduced and you would end up accumulating more money. Other tax-advantaged accounts that you should consider include a health savings account and a 529 college savings plan.
5. Avoid Being a Stock Picker
When you buy and sell an individual stock such as Google, Amazon, or Apple, it comes with significant risk. Even if you hire a professional money manager, it is impossible to predict whether the stock would go up or down with certainty. This is why it is best to opt for more diversified funds.
6. Avoid Hefty Fees
Watch out for the expense ratio that different investment funds charge. For example, if you are told that there is a 3% expense ratio, it would mean that your total assets would be charged 3% for covering expenses such as administrative, advertising, and management costs. This is why you need to choose a fund carefully.
7. Utilize Automation
If you want to know how to invest money wisely, you need to automate investments. It will make your life a whole lot easier. It is a good idea to automate money transfers from your bank account into your investment account every month to avoid spending it.
Once you have finished reading our post, you will learn how to invest money wisely. It is important that you follow each tip in order to maximize your wealth.
*None of the quotes are meant to be construed as investment or financial advice, it’s for entertainment and motivation purposes only.