One of the biggest misconceptions about investing money is the idea that it’s something solely meant for those who have too much money on their hands or, at least, a large surplus of income. This, of course, is not true, seeing as how those who are in financial dire straits might be those who are in the biggest need to start investing as soon as possible. Here’s a brief guide on how to grow your wealth.
Start saving money
Once you start giving up small luxuries in order to save money, you’ll be surprised at just how quickly you can amass wealth. For instance, a single large latte each day can cost you as much as $4, which means that by completely avoiding this pleasant but unnecessary luxury, you can save as much as $1,460 every year. By investing this figure alone, for an annual return of 8%, in 10 years, you could afford a 277 square feet real estate ($25,994 of value). In other words, with the right strategy and the right mindset, you have many options ahead of you.
The sooner you start the better
Keep in mind that the more money you have, the bigger the income those 8% become. This means that your wealth doesn’t grow linearly but exponentially. It also means that the sooner you start, the more you’ll earn. This is especially important if you’re trying to save up for an early retirement. A lot of people see a problem with this, since their income might not be that formidable while they’re in their 20s. However, their saving doesn’t have to be a fixed amount but a percentage of their income. As much as 10% of your yearly salary with 6% of annual return is an incredible sum.
Invest in education
The world of investment is more complex than you realize and even though some people did manage to make a fortune without much knowledge, chances of this are like winning a lottery. This is why you need to start investing both time and resources into your financial education. First of all, you need to single out your main type of investment and then focus all your efforts to try and learn as much as you can about it. For instance, if you intend to buy real estate, what you should do is look for viable property investment seminars to attend.
Diversify your portfolio
Another thing you need to understand are the risks of investment and the fact that no matter how lucrative one option may seem, it’s never wise to put all your eggs in one basket. For instance, cash savings can give you an annual return of 2.7%, while stocks tend to return as much as 7% every year. The problem, however, lies in the fact that keeping your money in cash carries a considerably smaller amount of risk. In order to further minimize the risk, you should also consider buying commodities like precious metals (gold, silver, platinum, palladium, etc.).
Minimizing investment expenses
Sometimes, the investment that you’re choosing may have commissions and fees that will eat into your profits. At the end of the day, you may pay a small fortune in completely avoidable expenses. After all, instead of losing all this money, you could have invested it otherwise, thus putting it in a position where it passively helps you grow your wealth. When making these calculations, make sure to consider the impact in the long-run, as well as to make an exponential instead of linear estimation (which is something we’ve already discussed).
Control your risk appetite
Generally speaking, there are three major types of investors – aggressive, moderate and conservative investor. This affects the way in which they use their investment funds, as well as their wealth-growth expectations. However, in order to be an aggressive investor, you need to possess a vast amount of knowledge, be focused on the task at hand (ideally, a full-time investor) and you would still be exposing yourself to a lot of risks. This is why being a moderate or even conservative investor is always advised to newcomers to this industry.
As you can see from the above, the key thing in order to grow your wealth is to make a decision to start investing. The sooner you start; the sooner you’ll be able to develop frugal habits of an investor. This will give you more maneuverability space, increase your chances of success, maximize your profits and evolve as an investor. Sometimes, getting a head start makes all the difference when it comes to the position in which you finish your race.