Part 3

5 Ways to Invest Towards Your Future

We’ve covered how to make the most of your current income – the mindset and habits which will allow you to regain control of your finances and begin to save towards your goals.

But what happens when your goals are bigger than your income? Should you stick to smaller goals and wait for a raise or a windfall?

Of course not! You have a right to your dreams. Here’s how to start bringing them to reality:

1. Open a Savings Account

This is the foundation for each of the options I’ll talk about below. Without at least some funds available to invest, it’ll be difficult for you to get started. Using your written budget as guidance, set up an automatic monthly payment from your current account into a savings account – and rename that account to reflect what the money is for. You’re less likely to swipe money out of “John’s Investment Fund” than an account with a generic name.

But before you look at investing in anything, make sure that your income and outgoings are stable and you’re able to commit to regularly paying into a savings account. The more you’re safely able to spare, the more options you’ll have for investment and the bigger the potential returns. If you’re unsure about your current financial situation, here’s a resource from the Money Advice Service which may help you decide: https://www.moneyadviceservice.org.uk/en/articles/should-i-save-or-invest

Remember that by their nature, investments carry an element of risk. The potential gains can be huge, but it’s sensible to reserve some of your savings simply as a personal emergency fund. Putting every last penny into an investment is a desperate strategy, and not recommended if you want to avoid insomnia and stomach ulcers!

That said, the art of investing is well worth studying and the more practice you get at it, the more skill and knowledge you’ll earn. Putting money aside for investment is investing in yourself, as well as in your future: that one stock you lose on may lead you to investing in one which pays off tenfold. And that business idea which doesn’t get further than the drawing board may be the seed from which a successful business blossoms!

Read on for four potential ways your savings could earn you far more than base-rate interest…

2. Learn About Stocks and Bonds

Both of these involve allowing an organization to use some of your money, under strict contractual terms.

Bonds work much like you borrowing money from a bank, but in reverse: rather than an individual borrowing a relatively small amount of money from a huge organization, bonds generally involve a huge organization borrowing lots of relatively small amounts of money from many individuals. You’ll buy a bond at a fixed interest rate which will apply over its lifetime, and you’ll receive this interest at regular intervals (usually every 6 months) until the set date arrives on which the company has promised to pay back the full original amount.

Stocks (or shares of stock) involve buying a percentage of a company. You’re not simply loaning an organization some of your money – you’re actually purchasing a small portion of that company. This means that the amount you invest in the company will increase – or decrease – depending on the company’s current market value. When you purchase stock or shares of a company, you’re essentially gambling on its success. As I said earlier, it’s a risk – but one which can pay off big time if you invest wisely.

Ready to learn more? Here’s a link to some free online courses that will get you started: https://alison.com/tag/investment

3. Invest in a Mutual Fund

Almost $17.4 trillion (yes, that’s trillion with a ‘t’!) of assets are held in mutual funds today (https://www.ici.org/pdf/rpt_17_profiles17.pdf). These assets include stocks and bonds, amongst other things. So what distinguishes them from the stocks or bonds you can buy individually? Basically, instead of investing in stock or other assets as an individual, you’ll pool your money with other investors. A ‘fund manager’ or ‘portfolio manager’ will decide how and where to invest that combined financial resource, and he or she will take a fee from it.

The pros are that you don’t need as much money or financial knowledge to start investing in a mutual fund, and the risks are lessened by the diversity of the assets purchased (a shared portfolio is generally larger than an individual one, due to the much larger available resources).

The cons are that you have less control over the investments made, the fees are higher, and the potential gains aren’t as high as for an experienced lone investor buying larger shares in a smaller range of companies.

Overall, if you’re new to investing and want to get started, mutual funds are a great option to investigate. Here’s a great place to start: https://www.coursera.org/learn/family-planning/lecture/5rJe8/mutual-funds (it’s free if you don’t want any certification to go with the course).

4. Buy Some Real Estate

Real estate is simply physical property, consisting of land and/or buildings. It’s generally divided into four main types:

Residential – both new-build and resale homes or holiday homes.

Commercial – shopping centers, hotels, offices, and sometimes apartment blocks (although they’re residential, they’re considered commercial when managed by an organization for profit).

Industrial – buildings used for manufacture and storage.

Land – vacant land with the potential for development, or working land such as farmland.

Most beginning investors will focus on the residential type of real estate, either with the goal of renting it out or selling it on for a profit. There’s more to say than I can do justice to here, so I’ll hand you over to the experts!

Here’s a blog aimed at young real estate investors: https://realestateinyourtwenties.com

…and an 84-page guide to real estate investing for beginners, from BiggerPockets: http://www.biggerpockets.com/ultimatebeginnersguide.pdf

5. Start Your Own Small Business

If you’ve ever dreamed of becoming a successful entrepreneur and bringing your business ideas to life, there are a range of fantastic free online resources available to support you:

Nerdwallet offer a free e-book guide to starting your own small business, from coming up with the initial idea to planning it and getting financial backing: https://www.nerdwallet.com/blog/small-business/

Once you’ve got the basics in place, this short article covers the practical steps to get you up and rolling ASAP. ‘How to Start a Small Business Within Hours’: https://www.inc.com/jeff-haden/how-to-start-a-small-business-in-a-few-hours.html

And finally, ‘15 Free Online Learning Sites Every Entrepreneur Should Visit’ is a roundup of useful resources for new business owners: https://www.entrepreneur.com/article/238908

Last Words

If you’re not quite there yet and need to work on your debt before you invest, go seek some inspiration from Dave Ramsey https://www.daveramsey.com/blog/7-characteristics-of-debt-free-people?ictid=aw15 and return to Part 1 and Part 2 as often as you need to.

Once you’re able to start investing in your future, your finances will gain momentum as they grow. The money you earn from small investments can be reinvested in bigger ones and you’ll start making your money work for you, supporting your goals, dreams and plans.