Wednesday, June 8, 2016

Investing Doesn’t Have to Hurt

Every wealth management advisor will start with one very basic principle: you need to save money--and the earlier, the better. 

We don’t think it’s necessary to convince you of the wisdom in that. You’ve already heard the message from a million sources, and if you need another reason to believe, check this link.

Here’s the problem: for most of us, investing is much harder than it sounds. There are already too many demands on our money: student loans, rent, car repairs, and groceries, just to name a few. 

Buying a new alternator before you go on that road trip is a much higher priority than saving up for retirement

When you’re living on a shoestring budget, how can you invest without making major sacrifices in your life?

Well, here are some ways that you can start investing NOW - not when your car is paid off, not when you’ve finally gotten around to setting a budget, not when retirement gets close enough to scare you straight. 

You can put these principles into action without feeling like you’re living like a pauper. 

#1 Short-Term Investments

Sometimes we have expendable cash for a little while, but we’re anticipating big costs in the future, so locking away that cash into a long-term investment account feels crazy. 

However, there’s a better option than letting it sit in a savings account with a return of 1% or less: short-term investments! When it comes to short-term investments, it’s better to focus on low-risk options, since there’s not as much time for the investment to self-correct. 

However, even low-risk, low-return investments will do you a lot more good than a savings account. Talk to your investment broker about short-term investment options, or check out some easy online investment software or apps (like Acorn, Robinhood, and Betterment) that will let you play with short-term projects. 

#2 Automatic Deposits

This is one of the most reliable and time-honored habits of smart investors. Automatic deposits into a retirement account will allow you to invest without feeling the pain of conscious deductions. 

If you invest before even counting that money as part of your monthly income, it doesn’t have the same pang. 

#3 Turning Bonus Cash into Bonus Savings

We all have a few things that happen throughout the year that just feel like bonus money. Any time you have that boost, consider turning it into investment, instead of an indulgence that will depreciate the moment you buy it.

  • Tax returns: We’re in a dangerous place when we start considering tax returns money that’s owed to us, because we never know precisely how much it will be. Consider depositing the whole amount as soon as you get it, or treat yourself to something you really want or need, but turn over any surplus to savings.
  • Yearly bonuses at work: If your company does yearly bonuses, think about it as a gift towards your retirement instead of fuel for yet another Holiday impulse-buy. 
  • Rebates: Some are factored into the price of something we buy, but some rebates come as a surprise. 
  • Sales: Did you just save 30 bucks on that jacket that you really wanted to buy? What a windfall! But most of us will forget about those savings, or spend them on something we don’t need because we look at it as free money. Put that free money to work instead. 
  • Resolution savings: Have you ever gone without a certain treat for a certain amount of time, due to Lent, or a health resolution with a friend? When my grandmother wanted to quit smoking, I promised to give up chocolate to support her. Even more than the health bonus that this brought, I realized that I was saving up to 15$ a month by cutting an unhealthy habit out of my life. It’s not much, but it does add up! We all need our indulgences, but the next time you make a health resolution, consider the savings in cash. It will keep you motivated because it’s a positive benefit that you can see right away. To keep from rewarding yourself by falling straight back into your favorite treat, put that money towards a rainy day instead. 

So, next time your dad guilt's you about planning for retirement, or you read an article that makes you feel way behind in money matters, don’t beat yourself up about it. Just put these three methods to work and watch your savings accumulate without feeling the pain.

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