How to Invest Part of Every Paycheck
If you can, setting aside a little money on the regular is the key to becoming financially secure. And while many people will initially choose to do so in a savings account — where there’s no risk involved — there comes a point where you might want to consider investing.
There’s no need to be scared of investing. It can simply be a way of helping your money grow. Here are three ways to make it easier on yourself, so that investing a portion of every paycheck becomes much more manageable.
Pay Yourself First
After dealing with necessities like rent, groceries, and bills, many of us then spend our money on the things we enjoy. Before that, how about investing a set percentage of your disposable income? Whether it’s $50 a month or $1,000, it all adds up over time.
Setting up an automatic transfer can mean you don’t even notice the money is missing. Start small with paying yourself and see how that impacts your life. You can always increase the contributions once you’re comfortable. It’s recommended that everyone have an emergency fund of a few months’ worth of paychecks, in case you lose your job or you need to replace a car. If you don’t already have such a fund, make that an early goal.
Make It Simple
Does your company have a 401(k) plan? Consider investing that way, so that the money is committed before you even see it in your paycheck. You won’t be tempted to touch it and the contributions will add up quickly. If there’s a company match, that’s extra money you don’t really want to miss out on, too.
If you already contribute to a retirement fund at work and want to save even more, it’s easy to open a Roth IRA or brokerage account. Just keep in mind that any money you make on investments sold via brokerage accounts may be subject to capital gains tax. (For more on the difference between traditional retirement accounts and taxable, brokerage accounts, see this overview.)
Get Paid What you Deserve
Investing is a lot easier when you’re being paid fairly. If you’re not happy with what you currently earn, get confident with negotiating and research what salary range you can expect based on education and experience.
If you do receive a raise, consider regularly investing the extra earnings. You already know you can live on what you earned previously, so embrace the challenge. If it turns out to be difficult and you need that money for unexpected expenses, you can always stop the contributions for a few weeks. Investing doesn’t need to be an all-or-nothing decision. Whatever you feel able to put aside for the future, it’s better than nothing and will continue to accrue compound interest over the coming months and years.
Tell Us What You Think
Have you found an investment strategy that makes things simple? Let us know in the comments or join the discussion on Twitter.
This post is for information purposes only and does not constitute investment advice. For help with your specific situation, contact your financial advisor — and if you don’t have one, this is a good primer on finding conflict-free advice.