How do you find more money to invest? For most people there are two solutions: you either grow your income or reduce your expenses. Aside from inheriting or coming into additional money or selling something, there really is no other way. One thing to keep in mind is that your income can grow only to the extent that you do. If you are not constantly improving yourself and your skills, you will find it difficult to increase your income.
Think big! You will be paid in direct proportion to the value you deliver to your company. Focus on opportunities and go beyond your job description. Making a higher income is often correlated to the level of commitment you have toward your job. If you love what you do, it is easier to be successful. If you have others around you who are successful, learn from them. Partner and mentor with someone wealthier and more successful than you. Leaders earn a heck of a lot more than followers.
You are bigger than your problems. Grow yourself above your problems. Grow beyond your internal ceiling. Get paid based on results. Earn what you’re worth. Focus more on your net worth than your income. Even if you are not earning much now, manage money well. Until you show you can handle what you’ve got, you won’t get any more. Develop good money-management habits and save money to invest. Good money-management skills are more important than the amount of money you have.
There are people who always seem to live crisis to crisis. They tend to also live paycheck to paycheck. Do you see where I am going with this? They end up digging themselves a pretty deep hole. They find a way out, and then boom!—they are back in the hole. Crisis after crisis tends to drain all they’ve saved or, worse, max out the credit cards. Like a rat trapped on a wheel, the cycle continues. A new perspective and a new set of rules are required to break the cycle.
Send Money Off to Work for You
“Money is a great friend, once you send it off to work.” —Peter Lynch
Remember when you were a child and you wanted a new bike or a new toy and found out that you had to work and save money to pay for it? So you mowed lawns, delivered newspapers, or did other chores, earned the money, and bought those things you wanted. When you got older and earned more money, you became enlightened with the concept of saving money. Eventually, you may have taken your cash out of the piggy bank and opened an interest-bearing savings account. You quickly discovered that money could actually make money. This is the concept of money working for you instead of you working for your money.
You probably work hard for your money and, if you’re fortunate, have some left over after paying your expenses. You want to commit that extra money to earning a financial return but realize that savings accounts provide very little interest. You’re ready to expand your portfolio to include investments that have the potential to provide greater returns.
The Rainy Day Fund
It is often said that when it rains, it pours. Disasters can happen in the blink of an eye. In times of crisis, you don’t want to be shaking pennies out of a piggy bank. Having a financial safety net in place can ensure that you’re protected when a financial emergency arises. One way to accomplish this is by setting up a cash reserve, a pool of readily available funds that can help you meet emergency or highly urgent short-term needs.
You should have at least three to six months’ worth of living expenses in your cash reserve. The actual amount, however, should be based on your particular circumstances. Do you have a mortgage? Do you have short-term and long-term disability protection? Are you making payments on your child’s orthodontics? Are you making car payments? Other factors you need to consider include your job security, health, and income. The bottom line: Without an emergency fund, a period of crisis (e.g., unemployment, disability) could be financially devastating. If you haven’t established a cash reserve, or if the one you have is inadequate, you can take several steps to eliminate the shortfall:
- Save money aggressively: If available, use payroll deduction at work; budget your savings as part of regular household expenses.
- Reduce your discretionary spending (e.g., eating out, movies, Starbucks).
- Use current or liquid assets (those that are cash or are convertible to cash within a year).
- Use earnings from other investments (e.g., CDs, stocks, mutual funds).
- Check out other resources (e.g., do you have a cash-value insurance policy that you can borrow from?).