Investing isn’t only for the wealthy.
The reality is if you’re looking to grow rich with investments and achieve financial security, spending your money on luxury or keeping up with Joneses is only going to slow you down.
Getting rich is a calculated move where all your money is spent wisely. There are countless stories of people building wealth with minimum wage jobs because they have the discipline to invest their money. This is good news for you because it means you can follow their example and in turn, build your own wealth.
Let’s go over some of the strategies you can use to build financial security by growing your investments.
Why You Should Invest Early
Get into the habit of putting money aside to invest later. Starting early allows more time for your money to grow with compound interest.
Once you start investing, here are a few things you would want to consider:
- Compare the rate of returns on your investments.
- Consider the time you need to park your funds to compound the invested amount.
Putting all your money into your savings isn’t smart.
Today’s banks are offering less than 1% annual interest, and when you take into account the average inflation in the US of 2%, your money is actually losing value.
If your aim is a higher return of investments (ROI), you will need to look into better investment vehicles that would allow you to grow your assets further. Other great investment options include stocks and real estate.
Aim to invest $100-300 of your hard-earned money in a month. If you’re having a hard time reaching this goal, you can start a side-hustle.
How To Invest
Investing is a marathon game.
You can look at it this way; it’s better to invest $50-$100 monthly than $1000 annually.
It’s essential not to get caught up with investing a large amount of money but instead, find a way to set aside $100-$300 monthly and do this consistently without fail.
Choosing to invest your money early allows you to take advantage of compound interest.
For example, if you invest $100 in the stock market, you’d earn on average 7% annually. This means your $100 will become $107, and your $107 will earn you about $7.50 in compound interest. Although you're only making an extra 50 cents, you'd want to think big. Zoom out, see the bigger picture, and imagine the compound interest that would play on higher amounts like $1,000, $10,000, or even more.
It might be challenging for some to come up with a few hundred dollars per month, but the real challenge comes from not spending money on frivolous items. A good habit that one can cultivate is to question each item being purchased.
Frequently, we spend our money without thinking things clearly first. If you’re planning to buy a new phone, ask yourself first if this purchase is essential or opt to continue using the same phone. Online stores like Amazon have made our shopping experience a lot easier and more convenient, letting us spend our money faster.
Avoid spending your money on unnecessary items and choose to invest it instead. No one is perfect, so it’s ok if you have some unforeseen setbacks during the year. Life happens, and as long as you continue investing in your long-term financial goals, you’ll get right back on track.
Set Retirement and Other Financial Goals
It’s never too early to plan for your retirement. Start by calculating how much money you’ll need for retirement. By doing so, you’ll avoid the stress of worrying about covering your expenses when you can no longer work.
As a general rule of thumb, you should set aside ten to twelve times your annual income to ensure you’ll have enough funds for retirement.
Have the Discipline to Save Money
Ask yourself what your motivating factor is for saving money and what direction you want to take.
Without having a purpose for your financial goals, you’ll eventually burn out and resort to ineffective money habits.
Start by planning your budget according to what you like and what you can eliminate. You don’t need to cut all expenses that aren’t helping you reach your financial goals. It’s ok to have some costs that bring you personal pleasure. Don’t abuse these expenses and use them to reward yourself after consistently investing your money.
Here are some helpful tips to save your money:
- Automate your savings with apps that help you save based on your spending pattern.
- Automate your bills to avoid late fees by using your bank’s bill pay feature or enrolling your credit card to make that payment.
- Open a separate account that has a higher savings interest.
Learn The Basics
Learning to invest is not as difficult as you think, but you also have to accept that every move comes with risk. Start by understanding your risk tolerance, as this will help you choose the proper ratio of stocks and bonds for your investment portfolio.
Here are some quick guidelines to maximize profit
- Invest in well-known stocks (ETFs or Index Funds) and avoid penny stocks.
- Rebalance your portfolio quarterly or annually.
- Consistently re-invest your earnings.
In the past, to invest your money in stocks, you’d have to rely on sophisticated financial advisors. Nowadays, you can invest in top-tier index funds and capture a 7% return on your stock portfolio at just the expense of small fees.
Don’t just take my word for it. Take the time to educate yourself on stocks and bonds.
Choose These Top Investments
Hopefully, by now, you already know some of the basics of why investing is important for your financial future. Below are some of the best ways to invest your money.
1. High Yield Savings Account
When you save your money on a high-yield savings account, it earns a .01-.6% interest with low risk. Although you run a low risk of losing your money here, your money will lose value through inflation.
On the other hand, putting your money in a savings account has many benefits. Your money is more liquid, which means you’re able to access it more quickly compared to the money you’ve invested in the stock market. In addition, a savings account is perfect for saving for short-term goals (1-2 years.)
2. Index Funds
Index funds are a basket of stocks that follow a specific market index. The index fund has the same exposure as the stocks of indices such as Dow Jones Industrial Average, S&P 500, and Russel 2000. Index fund investing means your passive funds are placed on low-cost stocks and match the market performance.
Most of the time, index funds do better than actively managed stocks because they require less maintenance and charge fewer fees. You can choose an index fund to invest in, but you’ll have better luck with ones that mimic the S&P 500.
Exchange-traded funds (ETFs) are different stock collections and are bought as a single purchase or entity. It is a type of mutual fund with a portfolio to match the components of the market index. It has underlying holdings based on the weighting method of adjusting or balancing out the influence of a single holding in a portfolio or index.
- Market- cap weighting
- Float weighting
- Fundamental weighting
ETFs are similar to index funds, except that they can be traded throughout the day.
4. Dividend Stocks
Dividend stocks are often paid out to stockholders quarterly by companies.
What is a dividend?
Think of this as earnings companies share with their shareholders. Some of the wealthy depend on dividend stocks to earn a steady form of passive income. When done correctly, you can make hundreds or thousands of dollars passively with dividend stocks.
You wouldn’t start earning sustainable income with dividend income at first, but after 5-10 years, you may passively make a substantial amount of money. The key is to start early and to invest consistently.
5. Individual Stocks
Individual stocks have the potential to net higher returns, but they also carry more risk. For example, if you invest $1,000 in Nike stocks, your money may go up 10-30% overnight or risk losing a substantial amount.
Individual stocks are typically better suited for experienced investors who’ve done their due diligence on different companies. A good rule-of-thumb to follow is to invest in companies that have been established, have a good reputation, and in the food or textile industry.
Cryptocurrency is a digital currency stored in a digital wallet. This new investment tool is sensitive to price fluctuations that can drop today and shoot up tomorrow, so be cautious and consider the following factors:
- Buy a Bitcoin wallet with minimum fees for every transaction, and it allows you to review before the actual buy.
- Buy Bitcoin from known and reputable sites that protect your privacy and transactions, using an escrow account to avoid scams common in the technological world.
- The Bitcoin site should notify your payment transaction within an average of 10 minutes and a maximum of 90 minutes.
- Accessibility to the Bitcoin site must have a complete menu of purchase products, earn, sell, and more.
7. Real Estate
Real estate has made most people wealthy.
Many argue that real estate investing is the #1 way to build wealth. Although you need to know about real estate investing, you don’t need to become heavily active with real estate to build wealth.
A great way to start investing in real estate is by renting out a room or space in your primary home for additional income. You can use Craigslist or Airbnb to help you earn passive income with the unused space in your house.
It’s hard to know where to start as a new real estate investor, and that’s why I’d recommend reading up on the latest real estate investment strategies. Real estate books will let you learn how to recognize real estate opportunities and offer guidance on starting.
Best Apps To Start Investing
What better way to invest your hard-earned money than by using apps that make the investing process a lot easier?
In the past, it was reasonably common to rely on a financial advisor in managing your investments. Nowadays, many apps do the hard work for you. Robo-advisors like Wealthfront and Betterment help you build a custom stock and bond portfolio based on your risk tolerance. These handy apps make investing feel as easy as putting your money into your savings accounts, except that your money will earn a higher return.
These Robo-advisors offer cool features: low fees, minimum deposit requirements, tax-loss harvesting, and automatic rebalancing.
Before you sign up with a Robo-advisor, you may need first to sort out your own financial goals. Make sure you list them down so you can easily refer to them when necessary.
Investing Mistakes You Should Avoid
In a perfect world, you'd invest your money and earn a steady return annually, but we all know it doesn’t work that way. A key point to remember is to allocate money for investments consistently and, along the way, take calculated risks.
Here are some key things to avoid:
- Although you’d typically have a higher earning capacity the older you get, your money will have less time to make from compound interest if you invest late.
- Expecting high returns quickly; investing is a long-term game and shouldn’t be used as a primary source of income early on.
- Making choices based on other people’s opinions. Take the time to educate yourself to make informed investment choices.
Make Extra Money To Invest More
Being young offers the advantage of endless energy and available time in your hands. If you are willing to exert more effort to achieve your personal goals, you’ll discover that there are many ways to make extra money.
Best Side Hustles To Start
Your regular job will take 8-9 hours of your day, but you still have an extra 1-4 hours to spare before ending your day. During this free time, use it to build a side-hustle.
The best part is that you now have the option to build an extra income from your laptop at the comfort of your own home. Some great side-hustles include starting a blog, podcast, or making Youtube videos on a topic you are passionate about.
Additionally, you can freelance on the side, offering one of your skills.
Save Your First $500 and Grow From There
The first big step is adopting better habits to manage your money better. Discipline yourself to save more money than what you’re spending. It’s not as difficult as you think, but it helps to have a purpose.
Start with setting a goal of saving $500 within the next 30 days and apply practical steps daily. You can then think about how you’ll benefit from these extra $500. Are you going to pay off credit card debt? Will this help you start your emergency fund?
Having a purpose in mind will help you stay motivated along the way. Save money by working more to earn more or cutting your monthly expenses. Once you figure out how to save consistently, you’ll be on track to growing your wealth.
Take Charge of Your Financial Future
The decision to grow wealthier is all in your hands. Although it’s never too late to invest, it’s always best to invest early so you can take advantage of compound interest.
Start with one investing strategy, then build up your portfolio by investing in more investment assets. Before you know it, you’ll be on track to building wealth and obtaining the financial security you desire.
1. How can I invest and grow rich?
You can invest in stocks or real estate.
Start by educating yourself in the different types of investments and leverage apps like Wealthfront and Betterment to build your portfolio.
2. Where can I invest my money to grow fast?
Investing is a long-term game.
Most gains are made after 1-10+ years because of compound interest.
For example, if you invest $100 in the stock market, you’d earn on average 7% annually. This means your $100 will become $107, and your $107 will earn you about $7.50 in compound interest. Although you’re only making an extra .50 cents, imagine compound interest working on $1,000 or $10,000.
3. What is the Best Investment for growth?
You are the best investment. The more you invest in your education to learn about different subjects, you become a better investor.
As you continue learning, build a side-hustle to earn extra income. This will allow you to invest more money per month and build wealth faster.