Putting money into a savings account is not only recommended but a true necessity. The increasing instability of our economy has created the need to have some sort of financial insurance for the years to come, regardless of whether you have a stable source of income or not. However, it can be difficult to constantly make deposits, knowing that the money will be essentially locked away (although you will still have access to it) until you truly need it.
Luckily, there are ways to increase the amount of money that you have in your savings account without actively working for it. This is done by investing a portion of it.
The basics of investing the money in your savings account
Realistically, when you first open a savings account, your first objective should be to save enough money to last for 4-5 years. However, depending on your income, this could take many smaller payments or a few large ones that are difficult to budget. The alternative is to start investing the money from your savings account.
First, make sure that you’ve saved up enough money to cover around 6 months’ worth of expenses. Ideally, you should already have 5-6 times that amount in your savings account. This will act as an emergency fund in case you ever need it. As for the rest of the money, it can be invested. You will essentially make the money work for you.
What can you invest in?
There are a few ways through which you can invest your money and each of them has different advantages and disadvantages:
- Shares – By buying a share you get a stake in a company. As the company becomes more profitable and its value grows, so will the price of the share. After a while, you will be able to sell them for more than what you paid;
- Fixed interest securities/bonds – These are loans that you give to various companies or the government. Once you invest your money using a bond, your money gets locked away. However, after a set amount of time, the money is repaid to you in full, along with a predetermined interest rate;
- Foreign currency – If you have a feel for how international finances change over time, you can invest your money in foreign currency. By buying US Dollars or Euros when their price is low and selling them when it is high, you will be able to make a profit. The main advantage of this method is the fact that the more you invest, the more you will make. Furthermore, the inner workings of foreign currency investment are easy to grasp, making it a great choice for beginners;
Be smart about how you use the money
Once you start making money off of your investments, you will have to use it wisely. Putting it back into the savings account may not always be as useful as it seems. Instead, consider using some of it to improve your financial situation:
- Pay off any outstanding debt that you may have – If you have any unpaid loans or ones that are very expensive, consider repaying them. By reducing your monthly expenses you will be left with more money to invest or deposit, in the future;
- Create an emergency medical fund – If you have any medical issues that may get aggravated in the future, consider saving up money for the upcoming treatments and medical procedures. This will allow you to pay for them without touching your savings account;
- Invest in your property – Renovating your come is also a good use of your money, especially if do not intend to move in the near future. By investing in your home you will not only raise its value but also increase its long-term durability. In other words, if fewer things break, you won’t have to spend as much on repairs;
By using an investment broker or an online robot adviser, you should be able to earn considerably more by investing the money from your savings account than if you were to only rely on compound interest. This having been said, however tempting it may be to invest all the money from your account, always make sure that you have something to fall back on.