How to change from being a spender to an investor

Guaranty Bank & Trust

May 18, 2021

Shifting from spending to investing is a change that can have a big impact on your financial wellbeing in the long-term. Spending is necessary, and it can also be fun, but at a certain point, is important to ask yourself how much of your income you could be investing.

Assuming you already have an emergency fund of 3-6 months of living expenses set up, now may be the time to begin investing your money.

Investing will not necessarily make you rich over night, but the idea is that it will help support you down the line when you want to retire, buy a house, or pay for another big goal, like a college education, etc. Saving money for all of these occasions is a great start, but investing the money will help you to earn higher yields.

Take a look at your monthly budget and consider any extra money you have that you could start to invest. Your future-self will thank you.

Why invest

Investing can help you grow your money overtime. Your income is one way to earn money, investing is another. Investing is a vehicle to help your existing money grow. Essentially, you give your money to an entity for a period of time, and over that time, the money earns interest. Eventually the interest compounds (earns interest on the interest). The most important factor in investing is time. Giving your money time to grow, and compound can help you see significant returns on your investments.

Types of investing

There are several types of investments one can make including stocks, bonds, mutual funds, futures, precious metals, real-estate, businesses and more. Many people opt for a combination, or a diversified portfolio. The idea behind having a diversified portfolio is to ensure that if one area of investment fails, you still have other avenues to continue making money. Yes, there is risk involved in investing. Nothing is guaranteed, but the overwhelming majority of investments do create a positive yield and therefore makes the investment worth it.

Why not just keep money in a savings account?

If you keep your money in a savings account, it will not grow nearly as fast as if is invested, which can cost you big over time. Even high-rate savings accounts, which earn interest, will not earn interest at the rate of investing. Since compound interest is the magic that makes investing worthwhile, keeping your money in a savings account will prevent you from seeing those high returns. It is a good idea to keep your emergency fund in a savings account so you can access it quickly and easily in case of emergency, but typically, everything else outside of the money allotted to your monthly budget can be invested. Make sure to speak with a financial advisor to discuss your specific financial situation.

How to get started

Investing is easier than ever now that there are several trading apps and accessible websites to use. Now it is also possible to buy fractional shares of a stock. Because of this, it’s possible to start small without having to take on a lot of risk while you learn the market.

Investing also gives you the power to become and owner in the companies you care about. When you buy a stock, you become a partial owner in the company. For example, if you’re a big Disney fan, you can buy Disney stock and then you’ll be a part owner of the company.

Investing for retirement

It is particularly important to invest toward your retirement. When you retire, you will no longer have an income, so it is important to make sure you save money in an investment account such as a 401(k), 403 (b), IRA or Roth IRA. Typically, these accounts can be accessed through an employer.

The FIRE movement

The FIRE movement is a popular strategy among young people. It stands for Financial Independence, Retire Early (FIRE). People participating in the movement save as much as 70% of their income and are able to retire around the age of 40-45 instead of 60-65 years, like most Americans. A popular component of the movement is a frugal lifestyle, both while investing, and while retired.

Ultimately, there is no one right way to invest. Money management is a personal choice, and it’s important to do what is best for you. You can talk to a financial advisor to get help with your specific personal financial situation and goals.