Saving money is an important part of good financial and economic planning. It refers to the act or process of setting aside a proportion of your income or profits for future use. While investment refers to the dedication of an asset including money, time, and effort to attain an increase in value over a period of time.
The term “saving or savings” is not new to most people and neither are they naive to the concept of saving but not even the bests of us do it the right way. Money-saving and investment are essential financial tools that can propel you through the way to financial security, but that is only if it is done the right way.
With the serious instabilities of most world economies, simply saving money without a full understanding of what you are going to find in this article will only prove disastrous and might lead to an unavoidable consumption of the money you thought you were saving.
For example, keeping physical or liquid cash in the bank gives you the feeling of financial security on what you can fall back on when the times are rough. But that also makes the money available for anything you make up your mind for because there is no purpose attached to it.
If you are a salary or wage earner, you might want to consider putting a portion of your earnings for saving if you are not already doing so. Most people save money in one way or another but these seven tips below will give you an insight into what a profitable saving should entail.
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7 Tips For Saving Money
Whether you are saving in the bank, your piggy bank or another cooperative saving scheme, these tips below will help you save the right way.
1. Set a fixed percentage
There are two ways you can quantify your money earned: First is, in absolute figures (say, $500). Second is, in relative proportions of percentages (for example, 20%).
One of the best ways to understand the real value of your money allocations is to value allocations in percentages. If you earn, say $500 monthly, you can divide your expenditures into percentages. You can adjust the percentage allocations depending on the absolute values for each allocation and what you want it to be.
From that total income, you could allocate over 95% to your monthly expenses and set aside 5% for savings. That way, you get to see clearly the proportion of your income entering into savings. 5% of $500 is $25, and you are at liberty to adjust this to suit your own needs. This is particularly important for those whose monthly income is not fixed and which varies from month to month.
2. Put your expenses into consideration
Many people enjoy it so well that they easily forget their own personal and family needs while saving. You don’t want to put up to 95% of your earnings into savings without accounting for your personal needs too, do you?
When you save almost everything you earned without putting your important expenditures into consideration, it is like wasting time and resources because when the time comes for you to satisfy those important needs, you would get the money anyways. Don’t forget, if you already saved the money in the bank, you would incur other charges on transportation, bank charges, etc, to get it out.
3. Adopt a budget
A budget is a financial tool useful for making concrete financial plans for a given financial period, say a month or a year. A budget enables you to appropriate your expenditures against your income for the financial period.
Adopting a proper budget will help you allocate a proportion to your savings while accounting for other essential expenditures. Read here to see how to successfully implement a monthly budget
4. Account for miscellaneous
In properly planning your savings, you want to ensure that you have something to fall back on without resorting to your savings. Simply knowing that your savings are untouchable can give you a feeling of financial strength.
Miscellaneous are those things that you could not account for during your financial planning or budgeting. You need to allocate a small portion of your income. This is not only important in providing money for those unforeseen necessities but also to prevent you from encroaching on your savings, thus protecting them.
5. Pay yourself more than you borrowed
If by any means you touched your savings or some financial assets you have vowed to keep intact, you also need to remove the immunity you may have against high interests when you borrow from institutions and other private individuals.
Even though you are not expected to replenish your own wallet with interest, you just need to add a little extra to the money you collected. That way you account for some hidden charges like taxes, and transaction fees, as well as add a little increment to your savings.
6. Business money is not personal savings
If you are running a business, especially a startup, you must recognize that your business money is not your personal money. Your ability to recognize your business as its own entity and separate it from yourself will make provide the right conditions for your business to grow and become autonomous.
Startup businesses often do need a huge chunk of the capital invested into it. So much that you might need to put back the who capital plus a significant proportion of the profits for several business cycles. At this stage, you might want to pay yourself a little proportion of the profits only while leaving the capital untouched.
7. Investing is the best way to save money
You can make your money work for you in two ways: Saving it where it can grow in compound interests. Two, putting it into investments. Saving money has the advantage of reducing the risk you incur as regards losing money. You have a higher guarantee for the safety of your money.
However, how “safe” can we say your money is from inflation? Take, for example, you saved $50 in the bank to grow at an interest rate of 2% per month. This will amount to $62 by the end of one year, but this earned interest usually does not keep up with inflation. Prices might have changed over the year and the value of the interest earned becomes relatively very small.
Investing your money is the best way to get higher returns from your money but the risks might be higher. You don’t need two heads before you can invest your money. Even though the risks might be greater, a good understanding of the basic tips for saving and investing (below) will help you achieve financial success by making your money work for you.
Tips About Saving and Investing Money The Right Way
No matter how much or little money you have, the important thing is to educate yourself about your opportunities and fully maximize them. When you invest your money the right way and observe all these tips you will learn below, you can make your money work for you big time. Below are some steps to investing adapted from the US Securities and Exchange Commission guideline of saving and investing:Saving and Investing Roadmap – US Securities and Exchange Commission
1. Make a financial plan
You need to have a clear plan of what you are saving for. Do you want to buy a house, save for seed capital, retirement, etc? Having a good financial plan in mind will go a long way to keeping you motivated to achieve it while you save or invest.
Also, you can set a time frame required for you to achieve your target(s). That way, you actually have a finish line you are running towards.
2. Know your financial situation
The success of any investment process depends on the preparedness and accountability of the investor. You need to have a good idea of your financial situation, your debts, assets, liabilities, etc.; to be able to give a statement like the below;
You need to examine yourself and get your mind prepared for investing. By examining yourself, you are not only interested in your assets and liabilities, you want to discover behaviors like impulse buying, lack of self-control, etc, that may hamper your success through investing. You also want to tell yourself that you have all it takes to succeed through this investment journey.
Accountability is a necessary tool in investment and it begins by first knowing what you already have and, thereafter, planning adequately for what you get later. Even when you are not expected to give financial report statements to anyone else, you must report to yourself how things are going.
3. Know your income and expenses
After knowing what you own and what you owe, your assets, liabilities, strengths, and weakness, it is time to project into your income and fixed expenses per time. Write down what you and your family earn, and then write out your expenses, for every month.
4. Make a budget and allocate to saving
After knowing the recording of your net monthly income and your possible expenditures, draw out a budget plan to accommodate all the expenditures you envisaged. Leave a portion for savings/investment as well as for miscellaneous as earlier discussed.
5. Pay off credit card debts or other high-interest debts
Before you fully veer into investing, you don’t want to leave trails of high-interest debts behind. Pay off your credit card debts, especially those with high-interest rates. This is because the longer you hold those debts, the higher your debts eventually become.
6. Cut down on unnecessary expenditures and reduce impulse buying
Financial freedom does not come without some level of financial discipline, at the very least. You need to categorize your expenditures into those you need and those that are practically unimportant. So that you can purchase only what you truly need, at least for now.
One of the greatest enemies to achieving financial freedom and stability is the habit of impulsive buying and poor purchase choices. By deliberately cutting down on those unnecessary expenses, you are on the way to overcoming the enemy called impulsive buying.
7. Save in fixed deposit savings or investment account
As earlier mentioned, you can invest your money by saving it in interest-yielding or investment-saving accounts. This will make your money grow gradually as long as it remains saved. As also noted, the profit returns from this are not as significant as those put into direct investments for the same period of time as you would see shortly.
The basic principle of investment is putting your money or resources into an activity that can bring you greater returns by the end of the day. These activities include but are not limited to the following: financial investments (bonds, stocks, forex), commodity marketing (retail, wholesale, services), landed assets and real estate, etc.
An investment that will yield your profit requires a great deal of planning (as discussed earlier) and the courage to take calculated risks. Risk-taking is part of investment and it is often said that the greater the risk, the greater the potential reward from investing. However, you must avoid taking unnecessary risks as much as possible.
As an investor, another way you can buffer your investment risks is by spreading your money investments among various channels. This strategy of not putting all your eggs in one basket is referred to as “diversification” and it increases the number of your investments that actually pulls through, even when you lose in a few others.
This strategy, called “diversification,” can be neatly summed up as, “Don’t put all your eggs in one basket.” Investors also protect themselves from the risk of investing all their money at the wrong time (think 1929) by following a consistent pattern of adding new money to their investments over long periods of time
What You Need To Know Before Investing
Before making an investment, you might need some investment advice from experts. You should also ask questions about the investments from those who are offering you the opportunities. The bottom line is, you should gather enough information about the investment into a venture before jumping right in.
Some of the information you need to acquire include:
Is the investment registered?
Have investors complained about the investment in the past?
Have the owners been in trouble in the past?
Does the business unit have a permanent location, etc?
Risk-taking in Investments
I have decided to stress the importance of risk-taking in investments here because there are always risks in every opportunity to invest. Whether in the short or long term, risks form a significant part of all opportunities and you must be willing to face them.
Risk-taking is not an act of mere display of bravery for the records. You are not doing it so everyone can simply know that you are a “risk-taker” but so that you can cart through the path towards profits. It is therefore important that you weigh the value of risks against the profits before you invest.
Determining the value or worth of risk takes two facets; You first need to determine the quality of the risk – is it something that can be done and will it eventually yield its promises? You need to be able to calculate the odds, and if you cannot do so, it is better to refrain from taking such risks.
You also need to determine the quantity value of the risk. Is the profit worth the risk? Imagine doing all that needs to be done and I get only a minute fraction of profit. It’s like a waste of time and effort when you could have channeled those into more lucrative opportunities.
Becoming a master investor is a learning process. You lose sometimes, you fall into some risks you carelessly took, and so on, but there are no hard and fast rules. You learn on the job most times when you are willing to take risks, that is, to learn.
Why People Fear To Invest
Here are some reasons why people fear investing.
Inadequate knowledge about the investment opportunity.
Unwillingness to invest.
Lack of understanding of various types of investment areas to invest in.
Insufficient or unavailable capital.
Sole belief in the traditional savings system.
Saving and investing money are important ways you can craft your way to financial success if done rightly. Here you have seen the various tips for proper money-saving; steps to investing; risk-taking; why people fear to invest and many others.
I will end by re-emphasizing that investing your money is the best way you can make your money work for you. Even though it comes with relatively higher risks, investing is always worth it in the end.
I am a medical doctor, a seasoned writer and passionate blogger. Thanks to many years of trials, failure, and near successes. I am the founder of Knowseeker and our content are geared towards enlightening and making you a better and happier audience.