Most of us can agree that we would like to have a larger bank balance. However, financial freedom is the main aim for the vast majority of people, who want to know what steps they can take to make their earnings stretch as far as possible and grow their wealth by being smarter about it rather than working harder. To be able to achieve this, it is important to get to a point where you are able to manage your money well and put it to work for you. Regardless of your current life situation, the first step is ensuring that your money is working as hard as you did to earn it. Investing part of your income each month is one of the best ways to increase your wealth over time and make your money work harder for you. Here’s how to get started.
Understanding the Difference Between Investing and Savings
Before you start, it’s important to know the major differences between saving money and investing money. While saving is a simple, low-risk way of putting away money for the future or a specific goal, investing means that you are able to significantly increase the chance of your savings growing over time. Rather than simply putting money aside, investing allows you to earn interest on your money, which is one of the key factors that sets super-rich people apart from everybody else. In fact, most millionaires have at least seven different investments or forms of passive income. Whether you are saving for retirement, putting money aside for your child as they grow up, or simply want to grow your wealth over time, it’s important to spend less than you earn, save regularly, and use a diverse investment portfolio to earn interest on your savings.
Paying Off Your Debt
A key step to getting in control of your personal finances before you start investing is to pay off your debt. Today, it can often feel hard or even impossible to get through life without being in some sort of debt. Most people who want to purchase their own home, for example, will require a mortgage in order for them to do this. However, it’s important to bear in mind that until you are debt-free, your money isn’t really yours. The sooner you repay debts, the more financial freedom you will have to start investing and growing your wealth. It is a wise idea to set aside time to concentrate on aggressively paying down your debts and becoming debt-free.
Setting a Budget
Another first step is to take the time to set a clear budget and get control over your financial situation, which you can do before, during, and after paying off debt. Without a well-thought budget, making financial decisions can be risky, and there is a much higher chance of you being unaware of how much your expenses are costing you each month and how much income you are left with to invest. Spending time putting together your personal budget, accounting for every cent that comes into and goes out of your account, is definitely worth the effort since you will be able to get a clear picture of where your money is going, helping you stay in control of your financial decisions. When putting together your budget, it is important to prioritise paying into a savings account or investment portfolio alongside other priority expenses like rent or mortgage, or utility bills.
Choosing an Investment Option
Once you are at a point where you’re in control of your money and are ready to start investing, it is time to think about the different investment options available and decide which ones will be the most suitable for you. If you are brand new to investing, the best option is to start small and work your way up over time as you become more familiar with investing and grow your knowledge and confidence.
Online investing is the most popular choice and there are plenty of platforms and exchanges where you can invest in a huge range of options including stocks, bonds, cryptocurrency and more. The good news is that you can invest with a very small amount of money, so you do not have to already be highly wealthy to benefit from getting started with investing. Before getting started though, it is important to spend some time researching the different investment options available and educating yourself as much as possible. Some popular investment options to think about are:
Buying Stocks:
Stocks are one of the most popular and well-known investment types available today, so it’s no surprise that the stock market is often where many new investors will get started. Purchasing stock means investing in a share of ownership in a publicly-traded company. Many big household names and well-known companies globally are publicly-traded, and there are several new and upcoming companies to invest in early for potentially great returns in the future, with plenty of options to choose from. If you are interested in growing your wealth by investing in stocks, Wealthsimple’s stock buying guide is a useful place to start. Wealthsimple has a huge amount of advice on getting started with investing in stocks, where to buy them, the risks involved, and how to increase your return on investment with the right strategies.
Investing in Cryptocurrency:
Cryptocurrency is booming right now and has quickly become one of the most popular investment opportunities in the world. With the value of Bitcoin currently at tens of thousands of dollars, it’s no surprise that more and more people want a piece of the crypto pie. Investing in cryptocurrency is very easy to get started with. All you need to do is find a reputable online exchange such as Binance, create an account, deposit cash, and use it to purchase a cryptocurrency of your choice. Bitcoin might be the most famous, but there are several Altcoins to choose from with various values and potential for future growth, so there are plenty of ways to diversify your cryptocurrency investment portfolio.
Real Estate:
Investing in real estate is one of the best ways to grow your wealth over time if you have the capital available, with the value of houses rising over time. When done right, investing in real estate can lead to significant returns. There are two main options to choose from, which involve purchasing properties to rent out to tenants, or properties to renovate and resell for a profit. There are also many growing opportunities for those who want to invest in non-residential real estates such as hotels and shopping malls. Crowdfunded real estate projects are another good alternative for aspiring real estate investors looking for something different. However, since real estate investment carries a substantial amount of risk, it might not always be the best option to start out with and is usually best for investors who have built a diverse portfolio already.
Investing in Bonds:
Investing in bonds involves the process of lending money to a government entity or commercial company. While this option of investing often comes with less risk attached compared to other investment types like buying stocks, it is important to note that the potential returns are often lower. Before the bond is repaid to you along with the interest that you have earned on it over time, you will usually be required to hold the bond for a pre-agreed period of time. However, bear in mind that there is always the risk of the company that you’re lending to folding, leaving you unable to get your money back.
Trading:
Trading is another increasingly popular investment option where investors will trade the value of one commodity against another. Currencies are a popular choice, with the Forex market one of the most traded around the world. When trading Forex, the aim is to purchase currency pairs when the exchange rate is low and sell them when it is high. There is a lot of potential to earn money here, but it’s important to understand the market before you get started since it can also be quite risky. Thankfully, many Forex trading platforms have demo account options that you can use to practice before getting started for real.
Retirement Fund:
If your main goal is to grow your wealth for retirement, opening a retirement account like an RRSP is one of the best investments to make. Investing in a retirement fund should be one of your earliest priorities if this is your overall financial goal. An RRSP makes it easier for you to grow your wealth and enjoy a comfortable future retirement since it is somewhere where you can grow your wealth for retirement tax-free. By the time you withdraw the money from the fund to retire, your tax bracket will be lower, helping you save even more. Make putting money into your retirement fund on a regular basis the main priority, and take advantage of any employer offers to match your contributions if available.
When it comes to building your wealth, investing is certainly the best option to consider. What will you invest in?