Whether you’re just beginning your journey toward financial freedom or you’ve been investing for years, it remains important to simultaneously save and invest, always keeping an eye out for opportunity AND potential pitfalls.
Beginning investors sometimes need a little nudge toward the savings vs investing balance, and if that's you, you're in the right place!
Meanwhile, experienced investors with cash reserves often need to be reminded that although they may have the basic money market account, online savings account, checking accounts, and even retirement account established, it's important to step back and evaluate how much money is going toward each bucket and why.
Every decision carries risk and while it is great to be planning for your future and building your portfolio, you never know what will happen. Let’s keep our fingers crossed, but chances are you may need to dip into your savings account or emergency fund at some point!
There is an ongoing, challenging balance between your income amount and the value you need to reach your investing, expense, and savings goals. While typically more difficult toward the beginning of your investing journey, these important saving tips and tricks will help you get a handle on your finances and allow you access to different investment options.
Here are 5 easy ways to start saving and investing at the same time.
Pay Yourself First With A Savings Account
Have you ever said to yourself, “where did that paycheck go?!”
For most people, as soon as a paycheck is deposited into their account, it’s spent on expenses like rent, mortgage, groceries, and utilities. So, the vast majority keep saying “I’ll save my next paycheck,” with no real plan in place as to how, because the truth is, no matter when or how much you get paid, there’s always an expense in the waiting.
To alleviate the push-pull relationship between earning more versus accumulating higher expenses, you’ve got to implement “pay yourself first” anytime you receive income. Prioritize your savings goal and take it out right away!
Take a small percentage of your paycheck (maybe just 5% to start) and place it directly into your emergency savings account. This has to be done immediately as your paycheck hits your account before any other bills or expenses get paid.
Moving a nominal value to a different account creates a beneficial barrier, protecting you from spending those savings. Rest assured that once you’ve paid yourself first, you can spend what’s in your checking account without feeling guilty.
If you are in a position where your job offers direct deposit. You can easily split your deposit by amount or percentage. This allows you to allocate, for example, 5% to your emergency fund and 95% to your checking account. This way, you don’t risk forgetting to transfer it or spending it accidentally, and it’s done automatically every single time.
Get Your Side Hustle Funding Your Investment Accounts
Everyone seems to have a side hustle now. Whether you are trying to boost your credit score, reach an income goal, or afford a big purchase, a part-time job or side hustle can really help accelerate your progress!
With so many opportunities, both in-person and virtually, that encourage connection, collaboration, and providing services as solutions, this is one of the easiest ways to get going in the right direction.
You’ve heard of the gig economy, right? Join the bustling online community of entrepreneurs making money and you’ll be saving and investing in no time!
The trick is to take whatever amount you earn from your side hustle and put it toward savings. Choose whether you want that extra income in your retirement savings account, high-yield savings account, emergency fund savings, or another investment account/financial opportunity.
If you feel like a part-time job is not for you. There are many opportunities to make money selling things you no longer want. Mercari, Poshmark, and Facebook Marketplace are all great options!
Look through your things and decide what is worth selling. Clothing, handbags, and accessories are popular on a lot of resale sites. You may want to sell bigger items like decor, kids’ toys, or furniture locally.
Create A Plan For The Unexpected: Emergency Savings Accounts
Life inevitably carries risks and unexpected twists and turns. The saying “plan for the unexpected” is perfect in this section. You may not plan for a specific amount of money, but you can always save a general amount or a percentage of money to create a little safety net. You never know when an unplanned expense like a car repair, job loss, or some type of financial hardship might pop up.
When you do experience a sudden financial crisis, you may be tempted to stop investing, under the impression you’ll have immediate access to would-be invested cash. But, if you already have an emergency fund prepared, you wouldn’t need to interrupt your investing goals or wealth-building progress.
An emergency fund exists to help you afford home repairs, emergencies, and other unexpected costs in a time of financial crisis. Then, when the repairs are done, the insurance pays out, or you’re on your way to your new job, you can rebuild the emergency fund, all while your investment strategy remained uninterrupted.
As you build your emergency fund, you can adjust the amount saved based on your expenses and obligations, your employment status or fears around such, and re-evaluate your savings account goals once or twice a year. Financial experts agree you should aim to save three-to-six months of expenses in your emergency fund.
Maintaining a hefty emergency fund is a great way to keep your retirement funds, investment accounts, and other savings accounts intact. Remember, whether we’re talking about building your emergency fund, stuffing other savings accounts, or funneling cash toward investments automatic recurring transfers are your friend!
Pay Off Your Loans With Aggression
I’m guessing you probably stare angrily at your phone or computer whenever you see the total balance on your loans and credit cards. You aren’t alone.
But you aren’t defined by those numbers. If you have credit card debt, a student loan or personal loan, or high-interest debt, those obligations are going to make it quite difficult to build an emergency fund or invest in your future.
As they suck up the majority of your paycheck, they limit the amount of money you have available for savings and investing. If you find it difficult to make progress toward your savings account and investing goals, it may be time to start prioritizing certain pieces of debt toward payoff.
There is a tremendous benefit to working with financial advisors who can review your credit report, compare it to your personal financial budget, and help create a debt payoff plan. They’ll know how to consider interest rates, minimum payment requirements, and work with you to prioritize which debts should be paid off first.
Simply put, even if your income doesn’t increase, by deleting your high-interest debt, you will free up more money for your investing and savings account goals.
Learn About Your Investments (Stock Market, Money Market Accounts, and Real Estate Deals too!)
Every CD, broker service, transaction, securities deal, and mutual fund has a cost. So, as you walk your financial journey toward building wealth by saving and investing simultaneously, you’ll want to pay special attention to the fees required by each opportunity.
If you are looking at the mutual funds inside your retirement or brokerage accounts, for example, it is a great idea to look at how much they cost compared to the projected returns. The more you know about fee and transaction information, the better, more profitable financial decisions you can make for yourself.
Employers typically offer retirement accounts as part of your benefits package. However, keep an eye on the fees and minimum balance requirements because they can be very expensive. If you discover steep fees inside your employer-offered plan, but still want the match (because hey, I wouldn’t pass up “free money” either), just contribute to earn the match and establish a separate brokerage account of your own outside of your employers' offers.
As long as you’re following an overall financial plan toward building and generating wealth, whether you invest inside an employer offered plan or on your own is irrelevant. Do your due diligence, examine fees, tweak your budget, and do what is in alignment with your financial goals.
Ready to Master Your Savings vs Investment Ratio?
No matter where you are along the path toward financial freedom, the key takeaways here are to take the time to set up and review your financial goals. Having a periodic “money date” to allow rebalancing, evaluate your risk tolerance, make adjustments to your budget, explore new financial products, or tip your wealth management strategy toward stronger diversification is key.
Here at Value Investment Partners, we’re experienced in working with investors at all experience levels, and truly believe that when you watch out for and respect your money, it takes care of you back.
As you check in with your expenses, emergency fund savings levels, and investment returns, we invite you to join Club “VIP”, because we love talking about this stuff! A fully informed investor (like you!) is more likely to make the right investment decisions and easily hit your financial milestones (maybe even faster than expected).