Rolling in the Bills
So . . . why would you want to save? Why would you ever want to invest?
As far as investing is concerned, you should invest because it is another way to save money, and you will get returns (aka extra money) on it. Of course, the higher the return, the higher the risk usually. But if you ever get to a point where you're comfortable in money, then you can tackle those higher risk investments.
Some Tips for Saving
- Create a budget. You start by estimating your monthly income and expenses. It's also a good idea to start the monthly budgeting by setting aside your savings first, not the goods and services you'll consume.
- Open a savings account at a bank. You will be able to keep your money safe, and you will earn a certain percentage of interest per year if you just keep it in the bank. Another bonus is that up to $100,000, the government will pay you your money back if something were to happen to it.
- Do not waste your money on useless items (as if that wasn't already obvious). Do you really need that Hello Kitty toaster when you've already got a perfectly good one at home?
- Start off with investing in a savings account at a bank. For most people, this will be a checking account. It holds money you need immediately for bills and such and for emergencies as well. Risk is pretty low, since you will always get your money back from the government up to $100,000 if something happens to it. However, that means you also won't get much return since only interest is being put into the account yearly. Liquidity is high here because you can easily withdraw your money. After you've established it and gotten comfortable with it, start on beginning investments. You could invest in bonds or mutual funds. Bonds also have low risk and low return, but have low liquidity because it's more complicated to withdraw that money, seeing as the government is paying you back.
- Use the Rule of 72 to figure out how long it would take for your money to double in your savings account. You do this by dividing 72 by the annual rate of return, and the answer is how many years it will take to double. For example, if you put $12,000 into your savings account and interest increased by 8% each year, it would take 9 years to double the $12,000 to $24,000. This doesn't affect risk, return, or liquidity. It just tells you how much return you may get within nine years.
- When you're finally comfortable with your bank account and comfortable in beginning investments, you should then start systematic investments. You can invest in stocks at this time finally. Their risk is at a medium level, depending on how much the stock costs, but if it's high enough, you could get a very good return as well. The money isn't as liquid either, seeing as you can only get the money after you sell the stock to someone else. Remember to buy low and sell high.