One of the best ways to save money is to plan a budget, and spend less than you earn. In time, when you've saved enough, you can begin investing. As with savings, you must invest regularly. Eventually, your investments will begin to grow, and you'll earn more money each month than you invest. The key is to focus on reducing risk.
Develop a financial plan. Identify your goals -- what do you want to save for? Determine a timeline for meeting each goal. This will help you choose the savings and investments options that will help you reach those goals. The U.S. Securities and Exchange Commission points out that the only way for most people to attain financial security is for them to save, and invest money over the years.
Set up an automatic deduction from your paycheck. By saving even a small amount regularly, with compound interest, your savings will grow over time. This strategy is most successful if you don’t make withdrawals, but set the money aside and forget about it. Certificates of deposit and money market accounts offer higher interest earnings than a regular savings account.
Increase your wealth by investing over time, but keep enough money in your savings to cover an emergency. Start small, if you don’t have a lot of extra money. Choose investments that offer lower returns, but are less risky. As you gain more confidence, you may be willing to take more risks to earn higher returns. Diversifying your investments in different kinds of financial products can help reduce risk.
Invest in three or four money market funds to get your feet wet. Although investing in stocks and bonds can take a long time to pay off, investing in other areas can help make up for any losses you incur along the way. Then again, while investing in the stock market can be risky, it can also yield high returns. You might want to begin by investing in small company stocks. These usually pay long-term annual returns at 12.5 percent, according to nationally syndicated personal finance columnist Scott Burns.
Consider putting money into a higher-risk investment option that has time to grow. If your goal is to save for retirement, you aren’t going to need the money for awhile anyway.
Do dollar-cost averaging. This method of investing involves putting a small, fixed-dollar amount in the stock market at regular intervals. This can make investing less stressful, because you don’t have to be concerned about market timing or current stock market conditions. Dollar-cost averaging also allows you to purchase more stocks when the prices are low. This investing strategy doesn’t guarantee that you'll make a profit, but investing over a long period increases your chances of making money.
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