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Just like we save to be a millionaire seven dollars at a time, so do we learn to save and invest one stage at a time. That really is the best way to do it.
Think about anything you’ve done successfully that you didn’t know how to do when you started: you didn’t go from zero to hero in one shot, you had to improve stage by stage
Investing is the same. Don’t think that because you don’t understand credit swap derivatives that you can’t start investing. All you need is to understand your next step.
It’s just separating your savings from your spending the moment you get it. You can do this with an envelope or a cookie jar, or you can do it with a direct debit from your current account to your savings account. Saving comes first, and it has to be separate.
It may not be a lot, but you need to make sure that you’re getting a return on your money. We need 7% on our money to become millionaires when we save $7 a day, so as much of our money needs to get a return as quickly as possible. Get your money out of that envelope or cookie jar and into a savings account.
You may not want to do that until you have $1000 in savings (that’s just 21 weeks of saving $7 a day, so it shouldn’t take long), or about 3 months of your spending, whichever is more. But you will need to do it as soon as you can, because you need a 7% return on your money, and very few savings accounts will give that to you, so you will need to invest.
Stage 3 is long, and complicated and will last the rest of your life. That’s fine though. It means you don’t have to know everything today. Just the next step.
After 20 years of saving, if you are getting 7% returns, your investing may in fact be adding to your wealth faster than saving your income, that’s how important it will be. Take another look at our video on The Magic Of Compounding to see how investing overtakes saving after 20 years.
If you feel you are at that stage already, open an account with an investment firm (like Charles Schwab), and find out how to buy an index fund in your local market for as low cost as possible. This will be a great start and in fact might be all you ever need to do. It will also establish your “opportunity cost”, meaning any investment you make after that will need to do better.
Featured in the FINANCIAL TIMES, and the DAILY TELEGRAPH, our MISSION is to help create millions of millionaires. We want people all over the world to use our simple tools to save emergency funds, turn those into investment plans and create the habit that will help enrich their lives.
If you’re interested in financial literacy, please also look at our new project www.maiawards.org