Each year, dozens of books, websites, videos, and magazine articles are devoted to investing. But what is investing? Most of us think of investing as putting money into financial products that provide growth and income. However, investing encompasses much more than that: investing is any action, including financial, that is designed to improve the quality of your life.
If investing encompasses so much of our decision-making, then it follows that you can better manage your money by considering every dollar you spend as an investment. Spending money at the grocery store, going out to dinner, or – more traditionally – with a brokerage firm is investing in something to make your life better. If, after the basics of food and shelter, each dollar is equal, how should you spend your money to get the best return on investment? While the answer will vary with each individual situation, there are some basic guidelines.
Focus on debt reduction. Few things are as debilitating as credit card debt. Use extra money to pay down your debt. Once you get a handle on your credit card debt, be sure to develop an emergency savings fund with 6 months to 1 year of living expenses that you can tap if needed. None of this happens overnight, but with patient practice you will succeed.
Analysts suggest that about 80% of our income is spent on big ticket items such as houses, cars, and health insurance. The other 20% is where you can cut some costs and put the extra money to work for you. This takes working with a budget and even, perhaps, budgeting tools. The key is to gain awareness of where you spend your money and, each time to reach into your pocket to pay for something; you ask yourself if this is the best way to spend this money. Over time, you will learn what’s best for you and those smart choices will reap the best return on your investments.
Source: The Motley Fool