For many aspiring investors, the hardest part is getting started. You need money to make money.
While it’s difficult to invest in real estate with zero money down, it’s impossible to invest in almost everything else with zero money down. Good luck trying to invest in the stock market with $0!
The biggest challenge is saving up that initial investment. Most people have only a handful of income sources, the biggest of which is their 9-to-5 job.
If you want to grow an investment portfolio, the first step is to start saving money. You need to build up capital before you can deploy it.
For many, this means doing something we all hate: budgeting.
Who wants to track every last penny they spend? Tools like Mint can automate a lot of the collection duties, but the process is still a burden.
If this is what’s stopping you from saving more money each month, I have better way.
Why You Should Pay Yourself First
Have you ever heard the phrase “pay yourself first”? The idea is simple and achieves 95 percent of the benefits of budgeting without all the hard work.
“Pay yourself first” means that you carve off a piece of your regular paycheck and put it away in a savings account. Save first, then spend the rest.
Every month, I take 20 percent of my income and put it towards my savings goals. My savings goals include my retirement accounts, my emergency fund, and an opportunity fund. My opportunity fund is the name I use for money I plan to invest. It’s like an emergency fund for good things.
How much you save will depend on your goals. If you want to save $5,000 of working capital for a real estate investment, $5,000 is your goal.
How do you get there? If you can save $500 a month, you’ll be there in less than a year. If you can only save $50, that’s more than 8 years away. If you can only save $50 a month and don’t want to wait 8 years, you’ll have to cut some of your expenses.
The best part about paying yourself first? You don’t have to track every penny of your spending. You no longer have to keep restaurant receipts and enter it into a budgeting spreadsheet. You no longer have to log into an account and categorize your transactions.
As long as you don’t spend more than the rest of your paycheck, you get almost all the benefits of budgeting without having to look at a single transaction.
Not only is it easier than true budgeting, this is an important mindset shift as well. By saving first and spending second, you are making saving a priority. You are forcing the spending to fit into the rest of your paycheck, rather than the reverse.
By having a goal in mind, both in dollars and in years, you are able to make smart decisions with your spending. Do you want cable television, or do you want to save an extra $100 a month and get that much closer to your goal? It’s easier to cut or reduce an expense when you have a good reason.
How to Pay Yourself First
Automate as much as possible. If you don’t have to think about it each pay period, it’s more likely to get done.
If you take part in your employer’s retirement plan, you’re already automating your retirement savings. That sum of money gets deducted from your paycheck each pay period and put towards your retirement. At a minimum, you should be getting any employer matching funds. I never turn away free money!
After that, your paycheck likely gets direct deposited into your checking account. From here, you will want to set up a savings account with a bank that lets you automatically transfer funds away from your checking and into your investment account.
Many online banks offer this as a feature. You tell it the amount, the day each month, and it’ll take care of it the regular transfer for you.
I recommend you transfer those funds into an online savings account that pays more than zero percent interest.
How to Pay Yourself More
Now it’s time to turn your attention to increasing that monthly number.
In an earlier example, I mentioned cutting cable to save $100 a month so you could put that towards your savings goal. The easiest candidates to save big money are monthly recurring expenses. Can you cut or downgrade your cable bill, cell phone bill, or a membership like to the gym? These don’t need to be permanent cuts, just long enough for you to reach your savings goals. They also don’t have to be cuts; you can downgrade your service plan in many cases.
Finally, always be looking for ways to save money. Each dollar you save becomes more powder you can use to build your investment empire.
You have a purpose now; it’s not just saving money for the sake of saving money. The more you’re able to save, the sooner you’ll be able to get your empire started and that snowball rolling.
What simple budgeting strategies do you use on a month-to-month basis to help save up for investments?
Leave all your tips below!