The Simple Savings Strategy That Will Jumpstart Your Investment Account

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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.

How to Invest in Real Estate While Working a Full-Time Job

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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.

Related: The Foolproof Monthly Budget: How to Save Up Money to Buy Investment Properties

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!

Related: How I Saved $20,000 in 2014 and Used it to Invest in Lifestyle Design

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!

About Author

Jim Wang

Jim Wang writes about personal finance, including his unconventional yet effective strategies for getting ahead financially and at life, at Wallethacks.com. You can also find him on Twitter @wallethacks.

20 Comments

  1. David White

    I read about the thought of “paying yourself first” in a book. Its a very popular book that’s always recommended on this website. But the title isn’t coming to me. I think its “Think and Grow Rich.” Anyway I’m on a tight budget as it is. But I’m probably going to eliminate my gym membership as I have a gym at my job. That way I can take the money for the membership and put it in my savings account. At least its a start. Every little bit helps. As I pay off my debt I can contribute more towards my savings.

        • Brad Lohnes

          Agreed – the Pay Yourself First principle is clearly outlined in “The Richest Man in Babylon” and it’s definitely a classic worth reading. The principle is reinforced in MANY writings, not least among them “Rich Dad Poor Dad” by Robert Kiyosaki and “The Millionaire Next Door” by Thomas J. Stanley and William D. Danko. And of course in this excellent reminder article. Thanks!

  2. Daniel Kenney

    Jim – maybe just as important, every time you get a pay raise, increase your savings by the after-tax amount of the raise. Too many people unconsciously (or consciously) increase their spending dollar-for-dollar with increases in their paycheck, which is why you see plenty of high earning individuals and families that barely scrape by. Many just can’t seem to get out of their own way and end up never building any material wealth as a result.

    Also, as you mentioned, there are plenty of online bank accounts out there that will allow you to earn ~1% with FDIC insurance… CIT Bank and American Express HY Savings are a couple I use.

    Good article.

    Daniel

  3. Brad Lohnes

    Automation is highly beneficial. We actually have a budget, which includes paying ourselves first. But we also automate other budget items into separate accounts – e.g. how much we can spend on groceries into one account, another account for car-related expenses, another account for home maintenance, etc. This not only helps with maintaining important limits within your budget, but also helps you save for one-off items without spending the money along the way. For example, we allot $1000 annually for vehicle repairs in our budget. If we only paid ourselves first and spent what is left, we probably wouldn’t have money available when the vehicle suddenly needs to be repaired. By dividing that $1000 up among our paychecks and setting it aside in a separate account (along with other vehicle-related budget items such as petrol, insurance, etc.) we ensure that money is accumulating for the eventuality. Apply this across your spending categories and suddenly you’re on a budget – when there’s no money left in an account you can’t spend anymore in that category!

  4. willie morales

    Hi Jim

    Good article, I used T.Harv Eker method of opening a couple of accounts and have my check deposit into those accounts every time I get paid. And you don’t notice it after a few weeks. The main thing is cutting expenses which i’m working on now, especially my cell phone and cable bills.

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