It is wise to save and invest money while you are single and have less expenses that a significant other and additional costs that a family can add. Decide to incrementally increase your net worth and the money in your saving and investment accounts while you are single to prepare to planned and unplanned future life events.
Pay Yourself First
Start by saving a part of your monthly income immediately after you receive your paycheck. The recommended amount is 20%. A simple way to do this is to automate the money that goes into your checking account and make the 20% of the money that is in that account to be transferred to your savings account. This makes it easier for you and makes sure that you actually put money into your saving account.
Plan for Emergencies
It is a wise idea to save money in case of an emergency comes up such as a car repair, an emergency surgery, or having to travel to after a family member dies to name only a few life scenarios. It is suggested that you have at least six months of income to pay expenses in case an emergency does come up or you lose your job. This emergency income that you saved for will help to maintain you while you look for a new job or must take care of whatever unknown life problem suddenly arose that you had not planned for.
Save More and Spend Less
Easier said than done. You have already formed habits and may be living a lifestyle that is beyond your current financial means. This is when having a budget and sticking to a budget is helpful. Do you really need to buy the hot fashion clothing? How about going out three times a week? Or, getting your hair or nails done at that fancy salon? You can cut back on spending by not choosing the premium option or shopping less, then the money that would have gone towards the more expensive option you immediately put into your savings account or to pay off any debt that you may owe. This way you put the money into your savings and make sure not to touch it so that you will see your money grow over time instead of spending it on things that you may not really need.
Get A Part Time Job
Adding an extra job may be something that you prefer not to do, but it can be temporary for as long as want to add some money into your savings that can later be invested in a portfolio that will give you a higher rate of return. Set a goal that you want to achieve such as to buy a new car or to put extra money away to prepare for an emergency. This is also a good option to increase your savings account given that the interests rates are extremely low with a low return rate to prepare for your future and any life goals that you want to achieve.
Certificate of Deposit
Once you have about $6,000 in your savings account consider looking into a Certificate of Deposit (CD). A Certificate of Deposit is a “savings certificate with a fixed maturity date, specified fixed interest rate and can be issued in any denomination aside from minimum investment requirements.” Once you set up a CD with a bank, you will be unable to access it according the length of time that you agree to. As a rule, the longer period will have a higher interest rate which will return you more money once the period ends. However, if for some reason, you do decide to take out the money that is in your CD for some reasons you will face a fine since you did not meet your agreement with the bank. It is best to follow the first steps again and rebuild your savings while you wait for your CD to mature. Once your CD’s term is finished you can either return the money to your savings, put it back into a CD, or invest your money.
Consider diversifying your assets into a mutual fund or create an investment portfolio. Investing in either of these two options will yield a higher rate of return than either a Certificate of Deposit or a Savings account will. If you are younger, invest in riskier investments according to your risk tolerance and the type of portfolio that you want to achieve your goals. In contrast, if you are older it is better to maintain a conservative portfolio since you do not have a shorter number of years to see the return on your investment and may lose some money in the riskier portfolio as the markets fluctuate.
Stick to Your Investment Plan
Do not touch your investment portfolio, unless you are a savvy investor and have a high-risk portfolio where you follow the market closely and know when to take out certain penny stocks or more speculative stocks. Come back to your portfolio once or twice a year to check out it is going overall and, if necessary, make some small adjustments. An investment portfolio is a long-term investment so do not play around with it too much unless you are familiar with how markets work. It is better to slowly grow your net worth over time rather than take a risk where you could lose it all by investing it in some bad stocks. Again, have a plan and know your risk tolerance.