Here we will discuss on How to save money for investment by How to learn investment? For doing investment there are few factors that always matter:
(1) Doing the right investment whether business, real estate, stocks market etc
(2) Measure the risk
(3) Last and final Money, without money it’s not possible to invest if you have good opportunities.
1. First rule of learning investment
Save from salary
As this topic is saying, How to save money for Investment? Well, it’s very important to save money as much as possible. Not only once but it must be a habit so saving money monthly.
If you can’t save money from your monthly salary, there is no use investing money. Well its a consistent way. There is a simple formula of percentage that you can follow and apply once you get the salary that we discuss in the next headline. If we don’t save the money from our monthly save, we almost lost many opportunities.
Like Bill Gates says in interview to Interviewer:
The interviewer asked Bill Gates How to be rich? What is the formula of getting rich?
Then Bill Gates replied to him, I never miss opportunities if I see any.
if I give a check to the interviewer and ask him to fill any amount on that, Interviewer denies that.
Bill Gates replied to him I gave you the opportunity and you missed it.
You must have money in your savings otherwise maybe you see any opportunities in future. You might lose that opportunity if you don’t have money so a better formula is to save money for upcoming opportunities.
For simple instance:
If a new good IPO listed, if you have money on saving you can grab that opportunity otherwise you missed or Mutual fund.
Limit credit card usage
Firstly, It is good to use your credit card, it helps you increase your score to get more and more loans. But it is also bad that too much depends on Credit cards.
Few people survive the upcoming month on credit cards and pay their credit card next month lose all their salary money on credit card payment.
Late fee of credit card:
For beginners, getting a credit card is kind of cool, but they must know How much their credit cards are charging for late fees if you do not pay the bill on time. It’s too much, so limit your credit card usage. Financial knowledge is very important when it comes to loans, late fee charges etc.
2. Total percentages – How to save money for investment
Well Life is beautiful we all know, and also we know entertainment, travel, enjoyment, investment 🙂 all things are important.
I’ll not say invest all your money somewhere there and there, and don’t enjoy your life.
But there is a proper way we can follow, we can have win-win on both sides.
Like in Big bang theory tv series:
They plan their weeks like what they will play and What they will eat.
Like that we can also apply that on our salary:
- Clear our debt, other loan
Here we need to clear all our debt, whether is personal loan from bank, where is credit card bill. Its is important, because late fee is very high. Try not to use credit card EMI option as much as possible. - Divide our salary into 3 section that we will discuss on below
As picture showing above we have you divide our salary in 3 section:
A. Investment – 25%
Under this we send our money somewhere separate account as for saving purpose, And we not withdraw that money for any reason. This 25% will must send day of salary is credit on our account. Once its dont we plan that our investment plan.
B. Necessary need – 50%
This section we pay our bills, groceries, rent, or loan etc. Incase you are living with your family, well good news for you. YOu can invest that amount on A and send this money somewhere investment purpose account.
C. Enjoy, shopping, party etc – 25%
Like i said life is beautiful we must enjoy that too. So we can spend our 25% money on shopping, parties etc {If necessary}. Otherwise you can use this for investment as well.
- Make a habit of that, and in the long-term we will all see results.
Firstly, Like bodybuilders say, if you want to get good fitness you need to be consistent. You can make six packs in 1 week.
Same this rule happens in How to learn investment. You need to follow 25-50-25 every month. Don’t use investment to save money – It’s important.
Because there is mind set between Rich and poor:
- Poor How much this cost
- Rich: How does it make
3. Spending money vs Investing money
Here we discuss scratch this topic as much as possible, there is no limit how many eg, discussions come under this.
Well to make it simple we create a scenario of John and his friend Rick. They both are working in a good firm in LA. Both have the same income.
And the only difference between those two is Rick completely focuses on “How to save money for investment by How to learn investment?”
On the other hand, John spends all salary on Buying games, cars, parties etc.
Both John and Rick earn $120,000 yearly.
Here the best part will come, “POWER of Compound”
How’s John doing?
He spent 50% of monthly income on loans, groceries, travelling, other billing etc That is mandatory.
For the remaining 50% of his monthly salary he spent on Luxury life on showoff stuff like cars, clothes, watches etc.
And at the end of month his bank balance comes near below $100.
How’s Rick doing?
He also spent 50% of monthly income on loans, groceries, travelling, other billing etc That is mandatory.
Remaining 50% of money he invests 25-35% of income on simple Mutual Fund which give him a return of 22%. Other remaining money he invested on learning, necessary parties, and entertainment.
Like i said he invests approx 30% of his income which is $3000/mon investment. That SIP investment gives him after 15-20 years a huge return if we go on an average Mutual fund return 22%.
So Rick will have money
After 15 years: $4,218,293
After 20 years: $12,875,843
Above is a simple difference between Spending money vs investing money. John is eg. of spending money and Rick belongs to investing money.
4. Saving money long term benefits
Well saving money on long term means Compound interest, Which is very powerful.
Let me tell you a story of a “King and his accountant related compound interest”
This story starts with the King assigned a task to all his people, but only the accountant finishes that task on time. And he made an impression on the King.
And the Happy King asks his accountant for a wish and he will complete it. That time the king was playing chess with his friend.
The Accountant said no my wish is something you can’t complete so leave. King and his force him to ask for his wish, and they swear they will complete it.
Accountant wishes that he needs just rice. But the pattern is he needs chess to have black and white boxes. You need to give me 1 rice in the first box, then double it in the next box, and then double it in the next box and soon.
King laughed at him, That I can do in no time. He did not know that his accountant tricked Compound interest.
1. Box 1: 1 rice
2. Box 2: 2 rice
3. Box 3: 4 rice
.
.
.
.
N. Box 64: 9223372036854775808 rice
In Pounds: 369710084403225.3125 Pound
In Kg: 167697673397359
Approx cost of 1 kg rice in US: $4
Money he will get from King: $670,790,693,589,436
This is the power of Compound interest, long the year of investment and more you get return.