Many people mistakenly believe that investing money is only for wealthy populations. But the truth is, investing is for everyone – at every age, career point, and income level. And whether you’re just starting to invest, or have been for decades, you can grow your net worth over time using a few different strategies.
Start investing as soon as you begin earning.
One of the most important factors in how much wealth you can accumulate depends on when you start investing. Starting early allows your money to compound and grow exponentially over time—even if you don’t have much to invest.
It’s a mistake to believe that you don’t earn enough to invest now and will catch up later. If you wait for a someday raise, bonus, or windfall, you’re burning precious time.
Use automation to stay disciplined.
Because it’s so easy to procrastinate saving and investing, the best strategy is to automate it. This is a simple, but tried and tested, way to build wealth. It’s why workplace plans like a 401k work; the contributions come from automatic payroll deductions.
Automation works because it anticipates that you could easily go off the financial rails and be tempted to spend money that you shouldn’t. To be successful, you must be realistic about ways you could slip up and then create solutions that force you to maintain good habits.
Have money automatically transferred from your paycheck or bank account into a savings or investment account every single month. When you set up consistent, automatic deposits, you put money aside before you see it or get tempted to spend it. It’s a barrier you set up that allows you to outsmart yourself so you manage money wisely.
Invest money to accomplish long-term goals.
Investments are the opposite of savings because they’re meant to grow money that you spend in the distant future, namely in retirement. Investing is also best for smaller goals you want to achieve in at least 5 years, such as buying a home or taking a dream vacation.
After you build up a healthy emergency fund, continue putting aside 20% of your income. You could invest the full amount or invest for something else, like a new car or vacation.
Leverage tax-advantaged accounts for faster results.
One of the best ways to invest money is under the umbrella of a tax-advantaged account, like a workplace 401k or 403b. If you’re self-employed, you have options too, such as an IRA, SEP-IRA, SIMPLE IRA or a Solo 401k.
Retirement accounts help you accumulate a nest egg and cut your tax bill at the same time. When you invest in “traditional” accounts, you contribute on a pre-tax basis. That means you defer paying tax on both contributions and earnings until you make withdrawals in the future.
Another option is to contribute to a Roth 401k or Roth IRA, where you pay tax on contributions upfront, but get to take withdrawals completely tax free later on.
If your employer offers a retirement plan, start participating as soon as possible—especially if they match some amount of your contributions.
Choose investments based on your “landscape.”
Your investment landscape is the amount of time you need to keep your investment portfolio before spending it. For instance, if you’re 40 years old and plan to quit working and live solely on investment income when you’re 65, you have a 25-year investment landscape. This is important to consider because, in general, the larger your landscape, the more aggressive you can afford to be.
If you have at least 10 years to go before needing to tap your investments for regular income, you have plenty of time to recover from temporary market downturns along the way. But as you get closer to retirement, it’s wise to shift more of your investments into less risky investments so you preserve your wealth.
The key to building wealth is to start saving and investing as much as you can as early as possible. But there’s no shame in starting small. Even putting away just $20 a month is better than nothing. And if you’re starting late, don’t stress about it—just get motivated to start right now.
Seeking advice from a trusted expert is always a smart move. Decatur Earthmover's Phil Cruikshank has been in the investment business for more than 24 years, supporting Members, offering advice, and guiding them towards a successful financial future.
Phil offers no-cost, no-obligation consultations for Members and Non-Members alike. That's our investment in YOU.
Call (217) 872-4136 to schedule!