Investing and making money often seems like a daunting project, however, every investor has to start somewhere. There are a million and one ways that you can make a return on your investments. You can choose to invest your money in the stock market, in real estate, or even with your bank.
There is a large misconception tied to the world of investment, which claims that in order to make a lot of money, you must first spend a lot of money. This is ultimately false as investments can be as small or large as you please. The most important aspect is being smart when deciding where to invest your money.
Nevertheless, the first step to investing on a budget is having a small piece of capital at your disposal. In order to efficiently save money, you must first work out how much you spend on a monthly or quarterly basis. It doesn’t have to be exact, as long as you have factored in your basic necessities, such as your monthly food shop, mortgage or rent, and utilities. The remaining amount should be divided for leisurely expenses, such as eating out or shopping, and whatever is leftover should be allocated into your savings account.
Apart from budgeting, you should try to avoid impulse spending and using your contactless. We all know how easy it is to spend an extra three or four pounds when you pay with your debit or credit card. Contactless payments in the UK have sky-rocketed this year as the spending limit was increased by £15 to £45 due to the pandemic. Try to avoid unnecessary purchases and if you do decide to buy something why not set a rule stating that you must enter your pin to do so.
Many banks offer the option to pay with round-up transactions. This way you can round up your daily expenses to the nearest quid and begin building your savings fund. For example, if your daily cup of coffee costs around £2.40, your bank will round up the transaction to £3.00 and the extra 60 pence will be added to your savings account. It may not seem like much but after three months, those morning coffees will have added an extra £54 to your savings. You can choose to begin investing with as little as £500 or £1,000. Some fund managers will even let you invest as little as £25 a month.
Now that you have set aside a sum of money, you can begin to explore your options and decide which type of investment is best suited to your needs. The whole idea behind investing is that you sink your money into something with the expectation of achieving a profit. Rome wasn’t built in a day and you cannot expect to make hundreds of pounds with your investments over a short period of time. Furthermore, you must always be prepared for the risk factor. If you invest your money wisely, there is a great chance that you could make a lot of money. However, if you rush into your investments there is always the possibility that you could make a loss, hence the golden rule: never invest more money than you can afford to lose.
The Stock Market
Now that we have covered the basics of investment, we can begin to look at the different options that are available to you. The most common form of investment is in the stock market. A significant advantage of investing in the stock market is that you are able to access your stock and liquidate your assets quickly. Unlike the property market, you don’t have to wait around to find the right buyer. The process of buying and selling shares is relatively fast.
Stocks and bonds are two of the many ways in which you can invest in the stock market. When you purchase stocks, you own a stake in that company. This makes you part owner and eligible to receive a portion of the profits. A bond is a long-term lending agreement in which you receive interest for lending your money. However, the usual minimum for investing in bonds is around £5,000. If you don’t have enough saved, you could consider investing in mutual funds.
When you speak about investments, you often hear the term diversification thrown around. Broadly speaking, diversified funds are a group of investments spread across various market sectors and/or geographic regions. This strategy tends to reduce the risk of investing. If a specific market or sector experiences a crash, your assets will be better protected.
A great way to diversify your investments is by investing through mutual funds. This gives you the opportunity to invest in hundreds of stocks which have been selected by a mutual fund manager. This can be done via exchange-traded funds (ETFs) or index funds. Check out this article to know more about the pros and cons of ETF vs index investments.
The Property Ladder
Another very common way to invest your money is by purchasing property. This is a bit more complicated than investing your money in stocks and shares, however, there are still many tangible benefits to be reaped from the property market. If you find a house in an up and coming area, it’s value could increase by three-fold in a matter of 10 or 15 years. The average price for a home in London in 2007 was around £292,000, however, in 2017 this increased by £186,000 to a whopping £478,000.
A great way to get ahead of this increase is by investing in an up and coming neighbourhood. You don’t need to buy a house in the most expensive neighbourhood. Do your research before you decide to make a purchase and apply for a mortgage. There are several ways you can increase your chances of being accepted for a mortgage. Once accepted, purchase the home, rent out the property, and let the income from your tenant’s rent cover your expenses.