The short answer is, invest today, not tomorrow.
If you just start investing a little of your savings, that amount will have that much longer to take advantage of the power of compounding.
Think of it this way – you’re already a financial “trader”.
Maybe you don’t see it that way, but if you work for a living, you’re trading your time for money. That’s probably the worst trade you can make in the long run.
Why? Because you can make more money, but you can never get more time.
How do you get out of this hamster treadmill? How can you have time as your friend while still making a profit?
Invent: A money machine
The basis for creating a money machine or your own personal ATM – the money that will end up giving you an income for life – is setting aside a set percentage of your pay check to pay yourself first.
That’s how to start investing 101.
Maybe that’s 20% or 10%. Maybe 50% or 5%. This number will increase over time as your income grows, but decide what portion of your income you’ll pay yourself now.
This is really how to start investing in the future you deserve.
Remember, this amount is off your income received whether it’s yearly, monthly, weekly or daily.
Your other expenses, such as property, loans, utility bills and food will come next.
The trick is then to put this money somewhere it will begin to work for you that gives you better than “Under your pillow” returns (which is 0% unless you have a tooth fairy).
Put this set percentage of your earnings into savings no matter what happens and you’re going to slowly start building your financial future.
Even if it seems like you’ve already accounted for every cent and can’t save, you actually can start saving right now by paying yourself first and living off the remainder.
It’s the best way to start investing.
Automate: Save and invest
The best way to set your money machine in motion is to automate your savings.
Yeah, you’ve probably heard this before, huh? But it’s true – when investing the secret is simply in making saving as easy as possible.
The key to savings success is by not seeing that money in the first place. That way, you’re not even tempted to spend it somewhere else.
You’ll always spend what you have, and reducing that just a little more.
It doesn’t matter if you’re living hand to mouth or earn six figures. Save now and you’ll be able to reap the rewards later.
You’ll be building a money machine that makes money when you sleep, when you eat, and when you eventually stop working.
Here’s how you can start investing and saving automatically
• It’s entirely up to you whether to save 5%, 50% or a percentage in between. A good general guide is to set aside around 20%.
Track how much you earn and spend in a month and see how much you can put aside. Save as much as you can, because that money will slowly but surely grow!
• Save and invest your money automatically into designated investment accounts. A number of different investments allow you to make regular investments helping you buy over a period of time using dollar cost averaging.
• Self-employed or own your own business? You can still contribute to EPF and PRS. You can even set up an automatic transfer from your bank account.
And say you get an increment or sudden influx of cash e.g. inheritance from your rich uncle, you can stick that into your money machine directly, spread it among your three asset allocation buckets or increase your ongoing savings percentage to match.
Don’t wait to invest – you’ll never get that time back in which you could have been making money. But remember, not all investments are created equal.
Learn more about the power of compounding and how to build a smart financial plan to get your future under your control.
Irrational Fear: Mr Market and Miss News
Mr Market is going to come at you with an offer every day. Miss News is going to tell you what’s new – good or bad (more often bad) every day.
As a saver and investor, you will end up running in circles if you try to take action based on what Mr Market and Miss News are telling you.
Timing the market could work in theory but you would have to accurately predict a lot of unpredictable things.
Investors and markets behave irrationally and something unexpected can impact the market significantly and swiftly.
No one can accurately predict when the market will go up or down, and by how much.
Couple that with human psychology which causes people to buy and sell when they should be doing the opposite.
Much more important is to save and invest regularly.
This is an ongoing process to build up a diversified risk-appropriate investment portfolio.
This article first appeared in https://mypf.my
MyPF is on a mission to help simplify and grow Malaysians’ personal finances through financial education.