Financial investments are available to anyone. We can all multiply money if we follow a few simple steps. In this article we give you the keys.
The first and only requirement to start entering this exciting world is to have savings available. It doesn’t have to be a large sum. It is even possible (as well as recommended) to feed our investments with small periodic contributions. Soon we will explain why (among many other things).
How can I multiply the money if I have no savings?
The previous step to invest is to save. You can achieve this with proper management of your personal finances.
The economy of a person or a family works in exactly the same way as if it were a large company or even a country. In the end it all boils down to income and expenses. If the income is greater than the expenses, there will be a remainder that will make our net worth grow (what we have minus what we owe).
We are going to see four tips to start with your savings plan, the basis for multiplying your money later.
1. Keep track of your finances
As a first tip about saving and investing, it is essential to keep a record of all transactions made on a day-to-day basis. In this way, you will have information to later make decisions about how income can be increased and expenses reduced.
It’s all a matter of designing a savings strategy, just as there are investment strategies. But first, we must have a full understanding of where the money is (or could be) coming from and going to.
For example, if there is a product or service that is important to you, but it represents a high percentage of your expenses, you can look for other prices, negotiate, buy wholesale, etc.
The same goes for the income side. With the emergence of new technologies, it becomes easier to get some extra money (passive income and even carry out some activity in spare time or on weekends).
2. Create a budget
The second tip to save with a view to multiplying your money is to establish a monthly budget and try to stick to it. Having an idea of what we are going to enter, how we are going to spend it and what percentage we can allocate to savings is important because it sets a course for us.
Thanks to the budget, you can plan and anticipate unforeseen events and manage your money more effectively. It will also help you design savings strategies, since it allows you to monitor your finances more completely. But, remember, the calculations must be made with absolute sincerity.
3. Pay off your debts as soon as possible
An important part of saving is allocating a percentage to the early cancellation of debts. This is because debts have a cost and, paying them off as soon as possible, will mean savings (In the case of bank debts, beware of possible early repayment commissions).
In principle, you could start by paying off debts with higher interest, so the savings will become more noticeable.
In this article you can find out more about poor financial quality debts (those that do not bring you any benefits, but entail a high cost), as well as other wrong decisions.
4. Sell the ones you don’t use
To top it off, you can also get extra income by selling what you no longer use. There are web portals that can help you with this task.
We all have objects that we no longer use. It may seem to you that the amount to get is ridiculous, however, as small as it may seem, it is always a boost that will make you gain greater confidence and will motivate you to continue saving.
Tips to multiply your money
Now that you have discovered some strategies on how to save, it is time to manage that money to multiply it. When you decide to invest your savings, there are 4 aspects to take into account.
1. Know yourself
Knowing what our risk tolerance is at more purely human levels, it would not be wise to invest an amount that its decrease or loss could cause us discomfort.
Therefore, the first question that we must resolve is the amount that we can invest without affecting our well-being and tranquility if the investment does not turn out as expected.
2. Pay attention to your personal situation
For this purpose, I have always liked to consider a rule by John D. Rockefeller that proposes marking the investment range by subtracting 100% of our savings according to our age. Therefore, a 47-year-old person should invest a maximum of 53% of their savings.
The important thing about this simple rule is that the younger we are, the more predisposed to risk we should have; As we get older, the risk should be less.
In this case, we must assess how age and risk have an inversely proportional relationship that fully corresponds to the normal economic development of a person’s life cycle. And this is why I like this simple method.
This article shows strategies and investment plans for different time horizons, invest money in 1.5 and 10 years view.
As with age, there are certain personal aspects that may condition you. For example, a greater or lesser burden of family responsibilities, job stability, ability to earn an income, etc.
In addition to knowing yourself, you must also attend to external circumstances (your age is one of the most important).
3. Set your profitability expectation
As a basic rule, we should consider a return of 2% per year in order to preserve the purchasing power of our investment: this is extracted from the consensus of the average inflation rate of 2% per year.
Therefore, we would understand that only investments that can offer us more than 2% represent a real increase in our capital.
In terms of profitability, we must take into account a binomial that is related to direct proportionality. This binomial is that of return-risk: the higher the risk, the greater the potential for return and vice versa.
Thus, to determine the profitability we must take into account the risk that we can or want to assume, taking into account that a high risk puts our investment in more danger and that less profitability puts our money invested in less danger.
4. Choose the right investment vehicle
Finally, we should choose the investment fund that best suits our needs and desires, directing our choice to those funds that best suit our present and future well-being, meeting our profitability objective and respecting our acceptable risk level.
The risk assumed by a fund to offer 5% return is not the same as the risk assumed by a fund with a target of 20% annual return.
In conclusion, it is our obligation to know each other faithfully to know what risk we are willing to assume to achieve the desired level of profitability. For this we find a multitude of investment funds that offer products suitable for any investor profile.
