What does investing mean to me?
“You have to make your money work for you” I am sure you had friends or family mention this to you while giving you advice on investing. But I’m sure you first impression is, “it’s more complicated than that right?” Well, no! There are some really simple steps that you can take now to make your money work for you.
The idea is to make sure that every year your money is growing at a rate faster than inflation. The global inflation rate has been around 2%-3% for the past few years, so if you’re getting 2% to 3% a year, you just break even with inflation. The goal is to get higher!
Here are 4 ways off the top of my head that I know you can use to achieve it
Find a savings account that gives you better returns
I know in the US, this is probably not going to work since the interest rates in the US are really low currently. But for Singapore, we can get up to 3% to 4% per year if we save with certain banks. Of course they have certain requirements in order to get this interest rate. Every requirement fulfilled with add to the interest rate you will receive and fulfilling all of them will get the stipulated interest rate from the bank.
Some examples include
- Crediting your salary every month to the bank
- Spending a minimum amount every month using your credit card (this can be used to pay your bills)
- Invest in some of their products
Now I am not advocating for their investment products but if you switch to paying bills with your credit cards and credit your salary into an account with them, you probably will get a much better rate compared to if you were to just open an ordinary savings account.
So look at the saving accounts in your country to see if you can get better rates, but always make sure to read the fine print and check the requirements first!
Take full advantage of your employer contribution
In Singapore, we have something known as the Central Provident Fund or CPF for short. Basically 20% of our income every month goes into a CPF fund and our employer will contribute another 13% to this fund as well. We can use this fund to pay for a variety of things like housing, education or use it for insurance or investment payments.
Of course, leaving our money in this fund will give us a yearly interest of 4% to 5%, depending on the plan we choose. However, this plan is not without its flaws. Firstly it is not something you can opt in for, so every Singaporean that is working has to contribute to it. Secondly, there has also been a lot of discussion over the minimum sum needed in the CPF account. They are very stringent on this, personally I feel they could be more flexible.
So the idea is to see if you have such a system in place in your country where the employer will match or add on to how much you contribute to a plan. For example, I know that in the US there is a 401(k). Where your employer will match up to a certain amount of your salary that you contribute. This is a simple way to get more! Of course, I am not too sure about the details. You’ll have to check it up yourself or maybe someone can enlighten us in the comments below!
Get out of debt
Now this isn’t really a way to let your money work for you, but it’s a way to avoid paying more! For example, if you have any student loans or mortgages currently, you are paying an interest rate on them. This interest rate is working against you since you have to pay more. But the moment you paid all your loans, this interest rate will no longer be working against you and you can think that it will be working for you! So always aim to clear up your debt ASAP.
Here are some great ways to begin:
MoneyMindedMom: Dig yourself out of debt
Pluggingandplaying: Top 20 ways to save money starting today
TheDebtPlower: What keeps me motivated to be debt free
Invest in the markets
Now, I want to be clear at the start. I am not asking you to buy individual stocks in the market, this is too difficult unless you know exactly what you’re doing. What I am proposing is to invest in exchange-traded fund or ETF for short. These are funds that would closely mirror the performance in the stock market and you will have a great chance of making money as long as you hold it for the LONG TERM. I would recommend at least 15 years. The idea is to make sure you are investing a fixed amount into the ETF every year and just leave your money in there to grow!
Here is an extremely well written article from DeclassifiedDollar on the advantages of the index.
I hope these steps have given you an idea on how to start making your money work for you. They would still require a bit of work, but once you get most of them set up, it becomes easier.
Let me know in the comments below what does investing mean to you? Do you invest? Why do you decide to invest or why do you decide not to invest?