It’s easy to get excited about picking stocks and building a portfolio. But coming up with the cash to start with can often be a challenge. Starting a savings plan isn’t exactly a thrill-a-minute task, either, but it’s a necessary first step. The job doesn’t have to be a strain, however, if you heed these few tips.
Identify a Goal. Or two or three. Why are you deciding to start saving and investing right now? (Note: "Getting rich" isn’t really a goal that will motivate you on a daily basis to do what you need to do in order to actually become a millionaire.) Then, write them down your goals, or, better yet, find a picture that represents your dream – your perfect house, a swanky sailboat, Harvard’s ivy walls, or even a photo of your newborn. Then tape them to your bathroom mirror, or to your computer monitor, or to your car dashboard – anyplace where you’ll be reminded on a regular basis about just what you’re working towards, especially when you’re scrimping and saving.
Try to find a few extra bucks each week. You don’t need thousands of dollars to start building a portfolio, so don’t make the mistake of putting off starting your investing plan just because you think you don’t have enough cash. Start small, with a few dollars a week if that’s all you can swing. Look for places in your regular routine where you can save a couple of dollars at a time and put towards your investing plan. You’d be surprised at how quickly just a little bit of cash can grow over time.
Just how quickly? If you can save $25 a month for 30 years, and earn a fixed 8% annual return, you’d end up with $29,346.47. That’s a nice chunk of change, but not enough to retire on. If you can save $25 a week, though, you’d end up with $127,953.53. From here on out, things start getting interesting – the more you can save and invest, the greater the money you’ll end up with, especially if you can earn an even better return*. But you have to start somewhere, and the few bucks a week you save by brown-bagging your lunch is just the place.
Bill yourself for services rendered. All right, maybe you don’t have the self-discipline necessary to economize and find a few dollars a month for your investment plan. But after all, you’re the most important person to your retirement, so why are you putting yourself at the bottom of your priorities? Instead, use the principle "pay yourself first." Simply put, this means that you set up an automatic plan to have a certain amount electronically transferred each month from your bank account to your investing account.
ShareBuilder makes this easy – all you need to do is enter your bank account information and the amount you’d like to have transferred on a weekly or monthly basis. Now you’re paying yourself first, before all your other monthly bills – and you won’t have to worry about forgetting or putting off making contributions to your savings plan.
Making a savings plan is an essential first step towards long-term financial success, so don’t put it off one day longer.
*Hypothetical illustration for presentation purposes only. Actual investment experience will vary with stock selection and changing market conditions.