We all know we should be saving and growing our money, but it’s hard to know where to start. Recent data shows that over half of American adults have less than $1,000 in savings. Financial advisers often tout the “secrets of growing your money.” But the truth is, there really aren’t too many secrets involved. Growing your money is about spending less than you earn and saving or smartly investing the rest. Here are a few tips to get you started.
Pay Yourself First
“Pay yourself first” is the number one tenant of growing your money. There isn’t a financial adviser out there who hasn’t heard or shared this advice. But what does it mean? In simple terms, it means that you should set aside money from each paycheck to apply to your own savings and investments. A great way to do this is to set up an automatic transfer from your checking account to your savings account on the first of the month. At first, this can feel like a hit to your budget, but after a few months, you’ll hardly notice the difference. Plus, you’ll be building a steady savings. Experts suggest saving anywhere from 10 to 25 percent of your income.
It’s also a good idea to split your savings and investments. For example, if you decide that you can afford to put away 20 percent of your income, you might decide to put 10 percent toward savings and 10 percent toward your 401(k) investment. This will ensure that you have savings for both the short and long term goals.
Lower Your Expenses
Growing your money isn't exactly all fun and games. It takes sacrifice. Financial experts across the board advise living below your means. That means cutting your expenses so that you're making more than you spend. Admittedly, this isn’t exactly a “secret.” You probably know that you’re supposed to spend less than you earn. But you may not realize that this is what often separates wealthy people from the pack. Sure, rich people have fancy financial advisers and accountants.
But they are also usually committed budgeters who know exactly how much money they’re making and exactly how much money they’re spending. They’re living below their means because they know that’s how money really grows. There are several free budget apps that you can download right to your phone to get a handle on your expenses.
You'll need to take a look at your expenses and find places you can cut. For example, you could choose not to upgrade your smartphone to the latest model. Or, you could cut back your cable service if you find yourself mostly streaming for entertainment. Another idea is to cancel subscription services that you're not using. By cutting back some of your extraneous spending, you could put away hundreds more each month to save or invest for your future.
Pump Up Your Savings
This tip goes hand-in-hand with cutting expenses. Once you’ve lowered your bills, it’s time to put that extra money to good use. Of course, you’ll want to save some of it for your short-term goals, and the rest can be put in investments. The more you add to your savings, the more your money will grow.
One trick to growing your savings without feeling a pinch is to increase your automatic savings by 1 percent every three to six months. So, let’s say you’re currently paying yourself 10 percent of your income through automatic bank transfer each month. After three or six months, increase that transfer to 11 percent of your income. Continue increasing your payments by 1 percent every three or six months. You will hardly notice a difference in your day-to-day life, but you’ll be amazed at how much that money adds up over time.
Open a High-Yield Savings Account
All savings accounts are not created equal. Some accounts pay out higher interest rates than others. Interest rates for savings accounts are generally quite low at around 1 percent. However, some banks offer higher rates to attract investors looking to keep their money safe and watch their money grow. If you’re saving for the short term, experts suggest a high-yield savings account over traditional investments.
Compare offers from several banks before deciding on a high-yield savings account. Some banks even offer better interest rates if you consistently make savings deposits month after month. This can really grow your money if you’re sticking to your plan of paying yourself first.
Diversify Your Investments
If you are investing, experts suggest diversifying your portfolio. That doesn’t just mean spreading your risk across different stocks. You should also diversify the type of investments you make. There are many different kinds of investments, including stocks, bonds, 401(k)s, IRAs, index funds, 529 college plans and more. For these type of investments, it’s a good idea to work with a financial adviser to make sure you’re lowering your risks and growing your money in a way that works for you.
Chelsea Levinson earned her B.S. in Business from Fordham University and her J.D. from Cardozo. She has been writing professionally for more than ten years. She has created personal finance content for Bank of America, H&R Block, Huffington Post and more.