3 Simple Ways to Silently Save Money and Build Wealth
Saving enough money to achieve your goals such as home ownership and a comfortable retirement doesn’t have to be complicated or sudden. Most people who build their wealth do so by staying consistent and sticking to simple, low-key strategies.
Here are three ways to quietly save money and build your wealth over the long term.
1. Avoid fees
Fees can eat into your savings, and they’re usually easy to avoid. Having a buffer in your bank balance can help you avoid overdraft fees and maintenance fees on your checking and savings accounts, and having cash on hand to avoid using out-of-network ATMs can help you lower ATM costs.
Successful investors also invest in funds with low expense ratios, such as low-cost index funds that track the S&P 500. The lower the expense ratio, the more profit you get out of pocket.
Money saved is money earned, and it also results in more principal that compounds over time.
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2. Adjust your savings and investments
Another way to save money in the long run is to use the set-it-and-forget-it method. Enter automatic transfers, banks and brokerages offer to let you set a certain amount of money to go automatically into your savings and investment accounts.
For investors, this allows for dollar cost-balancing – a strategy that involves investing a fixed amount of money in the financial markets over a period of time. This method allows you to ignore market noise that may tempt you to pull your money aside and miss out on market returns. If you have a 401(k) or similar retirement savings account, you may already have automatic transfers set up. Consider doing the same with your other savings and investment accounts.
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3. Stick to the basics when investing
Most people who grow their investment portfolio sufficiently to reach their goals do so by relying on index funds instead of trying to pick individual stocks that outperform the market. While choosing stocks that outperform the rest of the market will lead to higher returns, it is very difficult to do, even for professionals.
Balancing the cost of the dollar in well-diversified funds is a time-tested strategy, and it will take much less time and effort than buying and selling stocks consistently in an attempt to replicate what the pros on Wall Street are doing. Diversification refers to investing in a mix of assets such as stocks, bonds and cash, as well as assets of different sizes and types. For example, a portfolio may include funds that provide exposure to US small-cap, mid-cap and large-cap stocks in several industries – such as technology, health care and industrials – as well as international stock funds, as well as bond funds. Some investments will hold strong or perform well when others suffer, which will help your portfolio weather market storms.
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