Finding cash to invest is a challenge for many people, maybe for yourself. But it really can be overcome.
Many authors have written that you just need to give up "small" things every day or week and that will give you more cash. But my experience is that those who drink that cup of latte every morning on the way to work depend upon that drink to stimulate and get them going, so while eliminating the latte may put a few bucks in the wallet, it may also affect your daily performance in the wrong way.
Many years ago I heard the phrase "pay yourself first" and it has been repeated in articles on a consistent basis. Easier said than done, I told myself every time I heard it.
But then one day the VP of a major company told me how to do it, how to pay myself first in a way that would make it easy on my wallet. The way is even easier today because of the internet.
There are three ways to pay yourself first.
1. Use an online, internet-based savings account
2. Take advantage of an employer based retirement account
3. Open a regular savings account at a nearby credit union or bank
Now don't throw up your arms just yet because you have heard this before and you believe it doesn't work. The method I am going to explain will work.
The critical aspect of gathering cash for investment is that how you do it has to be specifically aimed at putting together money for investing. The result is that ultimately your cash will grow significantly when it is invested in stocks, ETFs or mutual funds. The savings account is a temporary parking place for your money because while it may grow in value, the interest earnings are very minor.
Generally speaking an online savings account will earn substantially more money than at a bank and even more than at most credit unions. Today one of my online savings accounts is paying 1.25% while my friend's credit union account is only paying 0.02%. Wow, what a difference.
The key to this savings account is it's for future market investments. Depending upon whether you want to invest in stocks, ETFS or mutual funds you need $100 to $2,500 to get going. This depends on which brokerage you choose and which type of investment. We will discuss this more in the future. Additional investments, once you have an account open are best made in increments no less than $500.
For this reason the savings account should be dedicated to accumulating investment dollars. In other words it is a separate savings account from any other account you may have. I suggest you have many savings accounts, each with their own purpose and goals. I have five, yes five savings accounts:
1. Emergency funds
2. Insurance - so I can pay life insurance annually instead of monthly
3. Christmas - so we don't dent the budget when buying all the kids presents
4. Travel & vacation
5. Investment
For some of these accounts I put in what it takes to meet a certain goal or bill by dividing the annual costs by 12 months.
For the investment account I suggest adding either a set amount from each paycheck or better yet a percentage of each check.
Now my daughter said, when I first mentioned this a few years back, "I can't spare any of my money." And this is what most people believe. Now she is a believer.
But you can do this, and this is how. You start out slowly, very slowly and build. The key is to set the account up for automatic deduction from your checking account.
Let's say you make $30,000 a year and your net take home pay is $850 every two weeks or about $1,700 a month. Start with an automatic deduction that is equal to 1% of your take home pay; in this case $17. You won't even notice it.
The automatic deduction into a high interest paying savings account is the key to accumulating money for investing and growing your wealth.
After two or three months change your automatic deduction to 2%; in this case $34 and because you will only be taking out another $17 from your checking account every month you won't miss it. If you get paid every two weeks you could set up the deduction for twice a month, in this case just $8.50 to start. Every three months increase your automatic deduction. Try to get it up to 10% or even better 15%. It may take a few years but you will get there and you will have the dollars to invest in the markets.
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