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It’s easy to be seduced by stories like this one: A man wakes up in his 30-year old car after an epic party weekend bender. He discovers he has $741.
That might seem bad but the truth is even more shocking: The man was actually living paycheck-to-paycheck and sometimes even going into debt at the end of each month. And guess who got him out of debt faster than any credit card company could?
That’s right — a lottery win
Those stories are nice but rarely happen (and are unlikely to happen to you).
But here’s the thing: Most of us don’t wake up one day and discover we have hundreds or thousands of dollars that suddenly appeared in our bank accounts. Instead, we work hard all year long and only find ourselves with extra cash when something unexpected happens (like a windfall tax return, or an inheritance).
And while having extra money in the bank isn’t necessarily a bad thing (and its a good goal to have an emergency fund), it certainly doesn’t make you “rich.” In fact, if you want to be truly wealthy, you need to do more than just have a few thousand sitting around in a high interest savings account earning zero percent.
Saving money won’t make you rich quickly (if at all). However, saving money over time and then investing it into real estate, the stock market, your personal business, and more can make you rich eventually.
It is likely to take you many years (or decades) to save and invest enough money where you are financially free at your normal 9-5 job. While waiting a few decades to start to have decent money isn’t horrible (it beats not having any money) most of us don’t want to wait that long.
That is why starting a side business or hustle is so popular in today’s world. If you are able to make a few hundred dollars a month extra from a side business you can invest that and quickly grow your retirement accounts and your lifestyle into what you want them to be.
I will go into more detail about starting a side hustle later in this article.
3 Steps To Grow Financially
If you’re not sure where to begin, there are three simple steps you can take to get started on your financial journey toward true success.
Step 1: Determine Your Goal
Before you even think about putting off paying bills or buying groceries, you first need to figure out exactly what kind of financial success you want to achieve.
- Do you want to retire early?
- Live comfortably during retirement?
- Buy a house?
- Start a business?
- Or maybe you just want to buy a new pair of shoes every week?
Whatever your goals, they will help determine where to focus your efforts.
Once you know what you want, then you can decide which type of investment strategy works best for achieving those specific goals. For example, if you want to retire early, you may want to build a portfolio consisting mostly of index funds because their low fees will keep your costs lower overall. If you’re looking to buy a home, you may want to consider a down payment program like FHA loans.
You can also use these goal setting strategies to pay off debt or fund various side hustles.
Step 2: Save Money Now
You probably already know that you shouldn’t go overboard with impulse purchases, but did you realize that you can use the same principles to reduce expenses elsewhere as well?
Here are just a couple of examples:
- Shopping online instead of going to stores? It’s free (if you don’t buy anything) and often cheaper (since you won’t be tempted by those endcap items)
- Turning off lights whenever you leave rooms? Use motion sensors!
- Rethinking eating out? Cook at home instead!
- Saving money on entertainment? Watch a movie on Netflix!
- Save money on laundry detergent? Try making your own detergent
All of these things can add up quickly, especially if you live in a big city where housing prices, transportation, food, etc., are relatively expensive. With a little planning and foresight, you can cut back anywhere you spend money without feeling deprived.
Step 3: Invest Wisely
Now that you understand why you should save money, you’ll want to earn higher returns on your investments. Unfortunately, traditional 401(k) and IRA plans aren’t always optimal solutions for everyone.
There are many different types of investment options out there, including stocks, bonds, mutual funds, annuities, REITs (real estate investment trusts), cryptocurrencies, private equity, and more. Each one offers its own advantages and disadvantages.
To see which ones fit your needs, check out Personal Capital’s Investment Checkup tool. This free service lets you compare dozens of popular investment options based on risk tolerance, asset allocation, goal setting, and more. Once you’ve determined your ideal option, you can sign up for a plan through Personal Capital that puts all of your assets in one place.
This allows you to monitor your finances 24/7 and see everything related to your investments in one convenient dashboard. You can even set reminders about upcoming bill payments, automatic deposits, and more.
In addition to choosing an investment platform, you’ll also need to pick individual investment choices within that platform. As mentioned above, each one offers unique benefits and drawbacks so picking the right one requires research and careful consideration.
How Much Should You Be Socking Away (Saving)?
The amount you choose to save depends largely on your current situation and future goals. Experts recommend starting somewhere between 10% and 20% of your annual income depending on your age. For example, a 25-year-old would likely put away less than someone closer to retirement.
The general rule of thumb is to split your total monthly income into four categories:
- 50% for necessities (e.g., rent, utilities, groceries, insurance, etc.)
- 30% for discretionary spending (e.g., dining out, shopping, hobbies, etc.)
- 10% for short term goals (e.g., mortgage, taxes, student loan repayments, emergency fund, etc.)
- 10% for long term goals (e.g., children’s college education, purchasing a home, retirement investing, etc.)
As you can see, this system gives you flexibility and makes it easier to prioritize your money since you don’t have to worry about lump sum vs. variable rate investments or whether you should pay off debt before investing.
When Do I Start Investing My Savings?
Most experts agree that the earlier you start saving, the better. However, it’s important to remember that timing isn’t everything. While some people say it takes ten years to reach financial security (where you can handle little bumps like car/house repairs), others believe it takes twenty. Either way, it usually takes longer than you think.
There are several factors to consider when deciding when to start investing, such as your age, expected lifespan, current employment status, and desired level of comfort with risk.
Many experts suggest not waiting to start investing. The earlier you start saving money for long term goals (like retirement) the less you have to save in total dollars to reach your goals.
In regards to where to invest your savings, short term savings such as for a house or car purchase, or an emergency fund should be kept in liquid investments that won’t fluctuate much over time.
Long term investments (like retirement, college savings, etc.) can be put into more risky assets so that they produce a better return over time.
What If You Don’t Have Enough Money To Save?
While working full-time is generally necessary for anyone hoping to become financially independent, it does come with certain sacrifices such as time with family. Often those who are working full time barely make ends meet which in turn means many people have to turn to a second job on weekends or a side hustle of some sorts.
Starting a side business will quickly drain you physically (trust me on that) but if you learn skills and keep at it you can quickly build something that can be sold for a nice lump sum or can produce decent monthly income.
I’m not talking about Lambo money (most of those people are scammers, let’s be real) but you can certainly start a side business and bring in a few extra hundred dollars a month within a reasonable time frame (a year or two).
Many people (myself included) have even turned what started as a side business (writing articles on websites) into a full time income that can support my family.
Another advantage to running a small business from home is that you control your hours and schedule. You can allocate a portion of your salary towards savings and still meet your financial obligations.
Can You Run A Profitable Side Business From Home?
Even though it’s possible to run a profitable business from home, you may still need outside income to support yourself. This is why many people will continue working a job while building up their side business until it reaches the point it will support them.
But how do these side businesses work? Do people really make money with a website? Fortunately, finding ways to create additional revenue streams can be done alongside building your passive income portfolio.
One way to do this is to partner with companies that offer affiliate programs. Affiliates promote products for a commission, typically 5-10% (or more depending on the product and company). When you refer customers to a product, vendor, or service, you receive a referral fee or commission.
Affiliate marketing is great for beginners since it’s relatively safe and straightforward. You can also leverage tools like:
- Amazon Associates
- Commission Junction
- eBay Partner Network
- Rakuten Supermarket
- ShopStyle Collective
and more to generate leads and sales.
Some platforms allow you to advertise multiple products and brands simultaneously. Others let you target specific demographics and locations. Still others provide analytics and reporting features.
According to Forbes magazine, affiliates made approximately $60 billion last year alone. So how do you join the industry?
Simply head to one of the sites that I mentioned above to register as an affiliate and select a product category. Then search for relevant vendors (products, courses, services, apps, websites, etc.). Finally, select the product you wish to market and complete the registration process.
Depending on the size of your chosen niche market, you can make significant sums of money over time if you start to drive traffic to another website using your blog or site.
So What’s Next?
With these three key pieces in place, you’re ready to take action. Take a deep breath, relax, and follow the step-by-step instructions laid out below. Within a few months or years, you’ll be enjoying the fruits of your labor.
Start saving money today.