Making money is anyone's dream. After years of hard work and effort, you want something in return. How to put aside today's needs to think about the future? Read this small but comprehensive guide to do it.
Steps
Part 1 of 4: Becoming a Savings Wizard
Step 1. Sit down and set a budget
Let's go in order: you can't build wealth if you don't save, and you can't save if you don't know how much you have and how you spend it. You probably already know pretty much how to budget, so let's not bother with this one. The important thing to remember is that setting a reasonable budget that you can stick to is a huge step towards your financial independence.
Step 2. Set aside a slice of each salary
How much to set aside is up to you to choose. Some save 10 to 15%, others a little more. But the sooner you start saving, the more time you will spend saving, the less money you will have to set aside each month. So start young, even if you only manage to set aside 10%.
Another number rule that some use is the rule of eight. This rule recommends that you set aside eight times your annual salary when you retire. By doing so, you should set aside the equivalent of your annual salary by age 35, three times the salary by age 45 and five times by age 55
Step 3. Take advantage of the opportunities
Few things in life are free, and money is no exception. But when there are occasions, it is better to take them on the fly. For example, if your employer has a supplementary pension plan where part of the contributions are paid for, take advantage of it. It is probably the closest thing to the concept of "free money".
Step 4. Invest in a pension fund, start early
A pension fund is a fund that is invested and enjoys tax benefits. There is a limit to the deductibility of payments to the fund each year. Currently the limit is around € 5,000, so your goal, especially when you are 20-30 years old, is to reach this figure.
Step 5. Get out of the habit of using credit and debit cards
While credit cards can be incredibly useful in certain situations, they can sometimes promote really bad financial behavior. This is because they encourage people to spend money they don't have, pushing worries further into the future until they eventually become inevitable.
- Furthermore, scientists have found that the human brain has two very different concepts of money and credit. One study found that credit card users spend 12 to 18% more than cash users, while McDonald's claims that card payers spend an average of € 2.50 more in their stores than cash users.. Because?
- We don't know for sure, but we think real, tangible money is more difficult to spend than on credit cards, perhaps because it's not physically present when you pass the card. In practice, paper money is considered by our brain a bit like Monopoly money.
Step 6. Set aside tax refunds, or at least spend them in moderation
When the state credits tax refunds, a lot of people spend it right away, thinking, "Hey, it's money from heaven. Why shouldn't I spend it?" It can be done once in a while, under favorable circumstances, but it certainly doesn't help build a fortune. Instead of spending tax refunds, try saving them, investing them, or using them to write off any debt you may have. It won't be as fun as spending it on a new set of lounge chairs or a food processor, but it will help you get there.
Step 7. Change your perspective on savings
We know that saving is hard. Incredibly tough. By its very nature, saving means postponing today's pleasure for future gain, and it is a courageous act. By looking at things from a different perspective, you can motivate yourself to be a much better saver. Here are a couple of ideas:
- When making a major purchase, divide the cost of the item by your hourly wages. So if you're eyeing that $ 250 pair of new shoes, but you're earning $ 10 an hour, they're doing 25 hours of work, or more than half a week's work. Is it worth it? Sometimes yes.
- Divide your savings goals into smaller parts. Instead of proposing to save € 5,500 per year, think about saving € 15 per day. If you do it every day, at the end of the year you will have 5500 €.
Part 2 of 4: Actively Building Your Wealth
Step 1. Talk to a certified financial advisor
Have you ever heard "money makes money"? Well, this is the case with the financial advisor. A consultant will cost you money, especially if he is good. But it will ultimately make you earn more than what you spent. It is a good investment, it will help you build your wealth.
A good financial advisor does more than just manage your money. It teaches you investment strategies, explains short- and long-term goals, helps you develop a healthy emotional and rational relationship with wealth, and tells you when to spend your hard-earned cash
Step 2. Decide if you want to start investing portions of your wealth
Investing is crucial to increasing - and not just maintaining - your wealth. There are countless ways to invest, and by doing so in the stock market a good advisor can guide you in the right direction. Here are some ways to think about an investment:
- Consider an investment in an index. If you invest in the S&P 500, for example, or the Dow Jones, you are betting on the American economy. Many investors think that putting money into an index is a relatively safe bet.
- Consider an investment in a mutual fund. A mutual fund is a collection of securities or bonds that are tied together to divide the risk. While they tend not to be as profitable as investing in individual securities, they are much less risky.
Step 3. Try not to get tangled up in the daily stock trading
You may think you can make a lot of money on the stock market by buying low and reselling when it goes up, every day, but time will prove otherwise. Even leveraging your knowledge of economics, industry or other investment principles, it still remains a speculation, a gamble, not an investment. And when it comes to gambling, the dealer almost always wins.
Much academic research has shown that speculative trading is not profitable. Not only is it subject to high transaction fees, but the payout is usually no more than 25-50% if you're lucky. It is very difficult to seize the moment in the stock market. People who simply pick good stocks and leave their money invested for long periods of time usually make a lot more money than people who buy and sell stocks all the time
Step 4. Consider investing in foreign or emerging markets
For a long time, US bonds were the best investment that could be made. Emerging markets now offer greater growth in some sectors. Investing in foreign bonds and stocks will make your portfolio more complete and reduce risk.
Step 5. Consider investing in real estate, with a couple of caveats
Investing in the real estate market is not necessarily a good way to increase your wealth. Those who believed that the value of real estate would rise forever caused the great recession of 2008. People soon found that the value of their homes had plummeted when the credit tightened. Since the market has recovered, many have started investing in real estate again. Here are some tips if you choose to make this investment:
- Think about buying a house that you can afford, making it part of your estate instead of paying the rent. Taking out a mortgage is probably one of the biggest expenses of your life, but that shouldn't deter you from buying a home if you can afford it and if the financial conditions are sensible. Why pay hundreds or thousands of euros of rent to a landlord without having anything, instead of spending on something that you will one day be able to say yours? If you are financially prepared to keep a home, which can be very expensive, this is the right choice to make.
- Trade carefully. The sale is done by buying a house, renovating it by spending as little money as possible, and then putting it on the market to earn. It can be bought and sold, some do it at a profit, but the houses can also stay on the market for a long time, eating you up a lot of money. It may be that a house costs more than what people are willing to spend.
Part 3 of 4: Becoming a Conscious Consumer
Step 1. Live within your means
This is one of the hardest lessons for anyone who wants to make money to learn. Live within your means today to live above your means tomorrow. If you spend too much now, expect to have less to spend in the future. For most people, it is easier to settle in luxury than to put aside.
Step 2. Always avoid making major purchases in the wake of impulsiveness
You may want that new car after you've seen your friend drive it, but it's your emotional side that speaks, not the rational side. Here's what to do if you feel the urge to buy something your rational half knows you shouldn't buy:
Establish a mandatory waiting period. Wait at least a week, maybe even a month, to get a clearer idea of the matter. After this time, if you still want to buy that item, it's probably no longer an impulsive buy
Step 3. Avoid grocery shopping when you're hungry and, for God's sake, make a list
Many studies have shown that people who buy when hungry spend more and buy more calorie foods. So eat before you go to the supermarket and make a list. Then, when you're there, just buy the things on the list and only allow yourself one or two exceptions. This way you will only buy what you need and not what you think you need.
Step 4. Buy online and wholesale
Instead of buying a pack of tissues that you know you will finish in a month, get smart and buy a stash for a year. Retailers give big discounts for bulk-bought merchandise. And if you are looking for maximum savings, check prices online before you buy. Often online you can find much lower prices because the retailers have only the warehouse costs.
Step 5. Bring lunch to work more often
If a meal in a restaurant costs you an average of € 10 and it costs you € 5 to bring it from home, in a year you will save € 1,300. More than enough to start funding an emergency fund in case of unexpected costs or job loss. Of course, you have to balance thrift with sociability, so you can go out to eat with your colleagues every now and then.
Step 6. If you have a home loan, refinance it to save a lot of money
Refinancing your mortgage can save you thousands of euros on installments. Especially if you've taken out an adjustable rate mortgage and the interest has gotten higher, you should consider a refinance.
Part 4 of 4: Building Wealth by Improving Your Skills
Step 1. Learn to earn
If you think your skills are limiting your earning potential, you may want to go back to studying. Business schools and evening classes have a lot to offer. If your industry is the computer industry, for example, many evening classes offer certifications on computer use.
- The fees and costs are usually less expensive and it takes less time than a traditional university, because there are no basic courses such as mathematics, Italian and history to get a professional degree.
- You shouldn't underestimate the possibility of taking a diploma, even a basic one. After all, many employers want to see you motivated to finish your degree and self-improve, while others just want to see a piece of paper.
Step 2. Build relationships with other people in the industry
Don't be afraid of office politics. Doing a favor to someone who will then return it to you is not bad at all.
Step 3. Support the community
Keep your eyes on community initiatives, such as the local chamber of commerce and the small business association. Use some of your time to volunteer at these places, talk to members, help your community. You never know how you can affect someone's life, or how someone can affect yours. It is important to have a lot of knowledge.
Step 4. Learn to use your money
After learning the art of saving, of sacrificing yourself for your future, it is good to keep in mind that sometimes spending is good, because after all, money is not an end, but a means. Their true value lies in what you can do with them, not how many you have when you die. So learn to enjoy life's small and big pleasures once in a while: a ticket to a Verdi opera, a trip to China, a pair of leather shoes. In this way, you will also learn to enjoy life by living it.
Advice
- Read. Yes, read. Read everything, stay informed about what's happening in your sector, trends, news. Read what happens in the world. Ours is a global economy and everything that happens in the world touches you personally.
- If your company offers a supplementary pension plan, take advantage of it. It is really easy and affordable.
- The money you accumulate must be profitable with investments that you must not interrupt or neglect.
- Cultivate your knowledge in your branch. Continue to train in your industry.
- Learn to invest profitably.
Warnings
- Don't spend your savings on whims and whims.
- Don't work for the minimum wage. If it were for your master, you would be paid even less.
- Don't forget to invest your money or you won't get any money.
- Do not spend the money you should invest, or you will continue to work without increasing your wealth.
