Something we hear time and time again is “I would love to start investing, but I don’t have any money”. By human nature, we are at times reluctant to change, especially when it comes to parting with something we hold so dear such as our money. When you hear your friends or that rich uncle of yours talk about their investment portfolio, know that everyone has started somewhere and the most critical thing you can do is to get started. But how can you actually save money each month for investing?
If you’ve reviewed your monthly budget and you still don’t think you can start, here are 4 things you should consider.
1) What are you planning to invest in?
Firstly, you should think about exactly what you want to invest in as this will determine how much capital you need to get started and also how you can get there. For example, if you are choosing to invest directly in to real estate then you will need quite a considerable cash amount available. Not to mention, you will needed further capital available for repairs, maintenance and any related fees for agencies, insurance and legal.
If you’re investing in securities, P2P or something similar, it’s likely there will be a minimum investment amount required but significantly less than real estate. Once you know how much you need to get started, you can move on to the next step.
2) Refinance existing debt
If you’re in a situation where you have absolutely no debt then you can skip past this one (and congratulations!), although statistics show that the average debt per person in the UK is £8,000, with the highest debt-to-income ratio in Europe seen in Denmark. Start with your largest debt, i.e. your mortgage, and check if you are getting the best interest rate available. Your property may have increased in value since you last checked and therefore your equity will have increased, this is usually the single most important factor for a bank when determining the rate they can offer you. Another common debt is a credit card; today there are a number of providers offering 0% interest rates for 12 months and over if you complete a balance transfer to them. Take advantage of these fantastic offers while they are available and use them to pay off your debt quicker, smarter and free up further income for investing.
Before you pay any bills (or anything at all for that matter), you should always pay yourself first. The day you get paid, you should set aside a minimum of 10% of your net salary to pay yourself and use the funds for investments, then you can focus on your bills and everything else. Once you get in to the habit of doing this, you may find that you choose to up your monthly percentage that you invest to 20%, even 30%, because it can be extremely motivating once you start to see your money work for you and generate interest.
4) Make some cutbacks
You don’t have to give up your car or downsize your house, but we’re certain that you can think of a few things you pay for each month that aren’t really necessary. What about that gym membership that you never use? Maybe you have a subscription to a magazine or a set of TV channels? The little things add up, so make a list of all the discretionary expenditure you have each month and you’ll be amazed at what you find.