Open an account? Sure, easy peasy.
Transfer money from bank account? Done.
Choose investments? BAIL, BAIL, BAIL! hahah Just Kidding.
I get it, the actual act of selecting what to put your money in can be intimidating but it doesn’t have to be!
Since I’m not a financial advisor and I don’t know your specific situation, I can’t tell you what you should invest in but here’s what you can look for when beginning:
1. Low cost index funds will save you money and allow you to diversify your funds all in one spot. They are an easy, hands-off way to invest in the stock market. This is what took the scary out of investing for me.
Index funds track various indexes and are made up of stocks that mirror the companies performance - like the S&P500.
For example, the average annual expense ratio for stock index funds in 2016 was .09% while the average annual expense ratio for actively managed stock funds was .86%. Now you might be thinking "that's not a huge difference", but over time this adds up and will take away from what you're able to earn on your investments.
The S&P although wildly popular, isn't the only index fund in town. You can select various index funds based on the categories of stocks the house. There are index funds based on size of companies, funds based on geographical area, the type of businesses they include, domestic versus foreign, and even by market opportunity.
Remember, not every index fund is low cost.
2. Look for funds that have low investment minimums or zero minimums. Sometimes the minimum required to invest can be a few thousand dollars to start.
3. Don’t pay someone to do this for you just because you’re a newbie. You can totally learn how to invest! And the great thing is, you can learn as you go and adjust accordingly.
4. Average return rates over time. For example, the VTSAX has returned an average of 8% since it’s inception. The VFIAX, 7.93%. But these are just examples and you can easily pull these statistics up on any investing platform or even by throwing it into a Google search.
5. Consider how much time you have. The younger you are, the more risk you can potentially take (but don’t have to). With that being said, this is even more of a reason just to start now. The earlier the better and the more time your investments have to grow, the more compounding interest works for you.
And remember, investing is a long game. There may be dips over time but historically you can track funds to see their overall growth. Don't get scared if you see a decrease in earnings, as long as you're not very close to retirement, you have time to ride it out. It will come back up.
Most importantly, pick one and start! You can learn more as you go and adjust as needed. You’ve got this and I believe in you.
For more details, grab my free guide “Investing for Beginners”
First and foremost - if you haven't put your emergency savings money in a High Yield Savings account, do that now! You're missing out on extra moula. It's not much these days (returns of about 0.5%) but it's better than a typical savings account at 0.04% wouldn't you say?
2. How much debt do you have?
But if you have a mountain of debt - the kind of debt that just weighs on you and makes you feel like you can't get out from under it, there's a strategy for tapping into your savings.
I believe it's always worth putting some money towards your debt so that the interest doesn't keep growing. Have you ever looked at your mortgage or student loans? The amount you took out is never the amount you will have paid in full by the end of the term. Interest accrues quickly.
It is easy for people to get defensive or feel ashamed when they are struggling with their finances. But here's the thing, where you are is just where you are, not WHO you are. Starting with this mindset will set you up for success!
The first step to creating healthy finances is to get clear on what your financial goals are. Start by writing down where you want to be in 1, 5 and 10 years time. Having clear goals will help you create even clearer action steps.
Most people don't like this next step, but in order to go where you want to go, you have to know where you've been. Take a look at your monthly spending: how much money do you have leftover each month after expenses? Is there leftover? Make it a game to see how much you can increase that leftover by removing any unnecessary spending, canceling subscriptions, and cutting out useless expenses.
Here's the best part - you get to give that money a plan! Tell your money where to go. The 3 areas your leftover money will go towards are: debt, investments and fun. Using the snowball effect, start by paying down your smallest debts. Once you've paid off a debt, take that money and add it onto the minimum payment of the next debt.
The key here is consistency. Make it fun, celebrate your progress and create your new belief about money.
Here's the thing, any kind of debt sucks but student loans suck a heck of a lot more.
Savings account - yup.
Loans - nope.
Go through your home and find things you no longer use or haven't used in 6 months. This includes clothes, furniture, shoes, decorations, anything you can find, you can sell and earn cash for. I like to use Facebook marketplace and stick to local pickup so you don't have to worry about shipping.
The other way to increase your income and beef up your emergency fund is by cancelling subscriptions. This is where you can evaluate whether a subscription is a need or a want. For example, I had an Audible subscription at $15 a month. I found that I could cancel it, join my local library and listen to audiobooks for free! Check your tv subscriptions, gym or anything else you pay for monthly and really evaluate how much you use it and whether it is something that is necessary for you to live. I usually say anything that makes me money, puts food on my table, or gets me to my job is necessary, everything else might not be. Cancel unnecessary subscriptions and put that cash right into your emergency fund.
Last but not least I recommend taking on extra hours at work or using your skills to work a side job. Everyone has strengths, what is something you can do that can bring in extra income? With the holiday season approaching, lots of jobs are looking for extra help and hours to fill. Any extra money you bring in can go right into your emergency fund.
My recommendation is to start with opening up an investment account if you don't already have one. My favorites are Vanguard or Fidelity or Charles Schwab. Each has different pros and cons depending on your lifestyle. If you have one with your employer and they match your investment, make sure you are maximizing that by putting in the percent they require to match. For example, if you start investing $200 every month for 10 years and you earn 6% yearly, at the end of 10 years you'll have $33,300. Of that though, only $24,200 is money you've put in. The other $9,100 is interest you have earned on your investments. The more that grows, the more your investments grow.
The amount you invest monthly will depend on your age and when you aim to retire. The younger you are, the less money you'll have to start investing monthly to reach your goals. Use Google to find a retirement calculator and calculate how much you should be investing. If you can't meet that minimum, that's ok! You can work your way up. Any amount of money you can invest is better than not investing at all. My suggestion, automate your investments so you can set it and forget it. Just be sure that you're money is being put to work inside your investment accounts and not just sitting in your investment company waiting to be applied to a specific investment.
Now list your debts from smallest to largest. Let's be honest, paying down debt isn't exactly the most fun but if you can give yourself quick wins you're much more likely to stick with it. That's why we start with the smallest debt you have. I recommend calculating your monthly expenses and monthly income to arrive at your "green gap" amount. This is the money you have leftover after paying all of your bills. Once you have that amount, you can delegate 45% of it to paying off debt, 45% to investments and then take 10% and put it into a fun account.
The key here is to continue paying the minimum payments on all of your debts and take that 45% extra to put on your smallest debt. Watch how fast that debt disappears and see how good you feel about your accomplishments. Now keep going!
Set a holiday budget for yourself and stick to it. One way I like to do this is to set up a "holiday fund" at my bank. This is just an extra account where I can put money for the holidays. If you have to lessen the amount you pay towards investments these next three months, you can choose to do that so that you don't go into additional debt just for the holidays. Know how good this will feel going into 2022 with less debt.