Quite a few readers simply tune out when I mention investments. They don’t believe the topic applies to them at all. “How can I possibly worry about investing when I can barely put food on the table?” they’ll ask.
The answer is simple: virtually every single person has the resources with which to begin investing. It may seem impossible for some to believe, but it’s true.
If you make purchasing decisions in your home, you have all you need to begin investing. Choose some generic items instead of the brands you usually buy and start your investing with the dollars you save.
If you ever spend money on entertainment, you have all you need to begin investing. Instead of renting a DVD at the Redbox, stop by your library, check out a movie for free, and put aside that dollar you save. There are countless other little ways to shave just a little bit here and there without changing your lifestyle.
If you use electricity, you have all you need to begin investing. Air seal your home or put in a programmable thermostat and you’ll see a significant drop in your energy bill, with which you can invest.
It all starts with the littlest of of choices.
Here are five simple steps anyone can take with that savings
1. Participate in your employer’s retirement plan. More than 90% of the employers in the United States offer a retirement plan. Many of those plans offer matching funds, in which the employer will make contributions to the plan if the employee does as well. Plus, this money goes in before taxes, meaning for every dollar you put in, it reduces your paycheck by substantially less than a dollar – and it also reduces your income tax at the end of the year. If you have a retirement plan at work and are choosing not to even consider using it, you’re choosing poverty.
2. Start an automatic savings plan. If you’ve found a way to cut your spending by even a quarter a day, you have enough to start. Set up an automatic savings plan and transfer whatever you’ve saved to a savings account each week or each month. Even $10 a month – about $0.30 a day – is a great way to start, as it will add up to $121 or so over the course of a year and continue to earn interest beyond that.
3. “Snowflake” into a savings account. If you discover useful one-time ways to save or to earn a little bit more money, don’t spend it frivolously on something you want in the short term. Instead, take that little amount – the $10 you found in the parking lot, the $7 you saved buyinig toilet paper in bulk – and put it right into your savings account. Even better, just start a jar for it, throw that snowflake right into the jar, then take it down to the bank when the jar is full.
4. Save windfalls instead of spending them. What about when something bigger and unexpected comes along? A relative dies, leaving you an unexpected sum. You get a settlement. You win a large cash raffle. You win at the casino (of course, you’d be far better off just not going to the casino, but that’s another story). Sure, feel free to celebrate with a little of that windfall, but instead of blowing through the whole thing like a snowblower through powder, put most of it into your savings.
5. As your savings grows, buy a CD – and then grow from there. Once you hit your bank’s minimums for purchasing a certificate of deposit, do so. This will earn you quite a bit more interest than you were earning in your savings account, but it will “lock up” your money for a while. That’s a good thing – since you’re not intending to spend it anyway, locking it up is just fine.
Congratulations, you’re an investor. When that CD matures and you couple it with your additional savings, you may have enough to start branching into other investments. Hold onto that money – when opportunity comes your way, you’ll have exactly what you need to jump on board.
A very specific example Let’s say Margaret chooses to start saving just $1 a day for the future. Once a month, she automatically transfers $30 from her checking account to her savings account – she doesn’t even have to think about doing it.
After a year, she has $360 in savings and it’s earned a dollar or two in interest. After three years, she’ll have around $1,100. She can then buy a $1,000 CD – a long-term one that earns a couple percent more than her savings account does.
Three years later, Margaret is still just saving a dollar a day. She can buy another CD and has about $200 left over in that account.
Three years after that, all of her CDs mature. She suddenly has about $4,000 with which to begin looking into more aggressive investments if she chooses. Maybe she buys a Vanguard index fund – they have almost no fees and can easily be purchased via their website. Or maybe she feels safer slowly building her cash reserves.
All this takes is a dollar a day.
One final point Now, I’d like you to imagine a couple more things.
Imagine if Margaret is forty when she begins this plan. By the time she reaches retirement age, after saving a dollar a day, she’ll likely have an extra $30,000 for retirement. Not bad for just a dollar a day that she’ll not miss.
Imagine if Margaret is twenty when she begins this plan. By the time she reaches fifty-five, she’ll have around $50,000 in savings. That’s seed money for a new business – a perfect way to begin her second act in life.
Imagine if Margaret is a newborn when she begins this plan (with a parent or a grandparent’s help). By the time she’s fifty, she’ll likely have (well) over $100,000 built up in that account. That’s an amount that can change a life.
These numbers assume that you never snowflake and that you never sock away an unexpected windfall, either. Imagine the possibilities.