Your money working for you. Sounds wonderful, doesn’t it? “How do we make our money work for us?” is a simple question with simple answers. Save early, save often and invest wisely.
Saving early and often sounds simple enough but is it? Saving early and often are the hardest parts of getting your money to work for you. It’s never too early to start saving. “The most powerful force in the universe is compound interest” Einstein is often quoted for saying. Every 100$ saved for 10 years with 10% yearly interest will be worth 2.5 times more. Save for 20 years and earn 6.7 times the amount.
When we’re young consumption levels are naturally high as we are making our first steps in life. Making a habit of saving is a must in order to achieve the status discussed at this article. There are several ways of making a habit of saving: A fixed sum automatically saved at the beginning of each month is one, planning a monthly and yearly budget is another and more are available. The point is, make use of any tool which allows you to save at least 10% of your monthly income.
How do we invest wisely? When discussing your money working for you we’re discussing long term investment (Over 10 years). In this case the best advice, based on market performance so far is: make long term diversified investments in stocks. The stock market has proved to provide the highest available return on investment – not without risk of course. This is where long term and diversification come to play. By diversification I’m referring to investments across various industries, geographies and financial assets (stock, bond, ETF etc.). Further reading in these subjects is highly recommended.
The combination of saving early, often and investing wisely by making long term diversified investment really kick in the long term. For example: Saving 1,000$ annually between the ages of 19-25 (for a total of 7,000$) with a yearly 8% return will be worth approximately 30,000$ by the age of 41. If you start saving the same annual amount when you’re 26 it will take you 2.3 times the time, or 16 years to reach the same total.
Some last words of warning. Don’t take unnecessary risks trying to achieve higher return on investment. It is possible to achieve unbelievable returns but it is also possible to lose all of your initial investment easily. Consult with professional while following the basic guidelines outlined in this article. Remember, we are here for the long term.