It might sound too good to be true but it’s managed to work for me, all it takes is discipline and an income. That’s it.
Step 1: Have an income. This can be from a job, Self employment, running multiple businesses, whatever. You just need a relatively stable income.
Step 2: Work out your average monthly expenditure on needs and necessities. These will be things like rent, phone bill, utility, food (Don’t get takeaways because this will eat away your bank account – pun intended). Once you’ve got this figure, see if you can reduce it, you can do this by showing around for deals on electricity, gas, water and insurance. Try a cheaper shop to buy from. By doing this it allows you to free up more cash to invest, which brings me nicely onto step 3.
Step 3: Try to invest 50% of your monthly income. Doing this is so powerful. I started doing this from late December and I’ve managed to increase my Net Worth by about £4,000. My yearly income is not high either, it is average for someone of my age. Each month I get around £1,350 after tax. Which means I invest around £675 per month. I’ll show you how I split up my investments in the next step.
Step 4: Automate your payments. This is a great way of being consistent without even putting in much effort. I’ve set up standing orders to move certain amounts of money to different accounts without even thinking about. I’ve got a standing order for £200 a month to go into my help to buy ISA. £200 a month to my stocks and shares ISA (Which gets automatically invested for me). £100 to my savings account and then the remaining £175 I use to average down specific stocks in my stocks and shares ISA.
Step 5: End of month management. If I’ve come to the end of the month and calculated that I’ve had less expenditure than planned for then I will actively manage what to do with those spare funds. If I know I’m doing something costly the next month then I’ll save some money to subsidise that cost. If I know I don’t need that money for necessary expenditure (very easy to have lower costs during COVID) then I’ll just whack the rest of that money into my investments. This way it doesn’t feel like I’m stretching myself too thin because I know I don’t need that money and instead in putting it into savings, I’ll take the aggressive approach and invest.
Doing this on a consistent basis will build good habits and of course, will build your wealth, especially if those investments even get you 5-6% you’ll be way better of than someone who doesn’t have a clue about their finances and just leaves all their money in a bank. At the end of the year I’ll update you with how much I’ve managed to increase my net worth by using these 5 steps.
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