Getting Funds for Investment (part 3)

It’s great that our financial market system is set-up to allow everyone the opportunity to build wealth. All the investment vehicles were tried and tested; some were more successful while some failed. We all know the financial market, particularly the stock market is made for the wealthy so getting the funds to invest is not a problem. But what about the 99% of us?

No More Coffee
No More Coffee!

We all received all kinds of advise on what to do with our money. Buy a house, invest in stocks, or maybe even invest in baseball cards. All of these require the funds (or disposable income) in order for them to become reality. Disposable income is defined as income remaining after deduction of taxes and other mandatory charges, available to be spent or saved as one wishes.

The question is how does anyone come up with the extra money when there are multitude of expense items that require our attention. I have the same challenges every month for the last 20 years. On top of the mortgage payment, there are utilities bills, groceries expenses and unexpected expenses. Over the years I learned of a few tricks that have helped me to come up with enough liquid asset that allow me to put some of them in investments. I hope this blog will help anyone who just started to earn wages to think about their future and how to come up with enough liquid asset to invest.

There are myriad of articles already exist out there showing strategies how to save money. I may repeat some of them here but mostly I will focus on how to prioritize the savings so much so that you don’t even know you are saving money. There will be some efforts and sacrifices made but they are for the benefits of your future. Thus, I would highly recommend that would consider some of methods in this blog.

Automatic Investment in 401k Retirement Fund

Most medium size and large companies offer 401k to their retirements. Some would offer the plan while others would match your contribution. If your companies offer matching contribution, you will want to max out the contribution and get the “free” money. The money you save in the retirement plan will continue to grow as long as the market continues to grow. The money you save in the plan will never go into deficit if you plan to withdraw it when you retire.

What happens if you have emergency need of cash? You can borrow against the retirement plan and repay it within certain period. If you fail to pay back the loan, you will need to pay a penalty and a hefty tax bill. Hence, any money you save in the retirement plan is considered “untouchable”. The good news is it will continue to grow and you never have to worry about it.

Annual Bonus and Tax Refund

At the end of every calendar year most companies will award bonus to their employees. Certain companies such as investment banks could award bonuses in the hundreds of thousands while some small companies would only give a few hundred dollars. While these are free monies, they are never actually “free” because they are usually taxed at a higher bracket.

Americans who start to earn wages are required by law to pay income tax to the federal and state governments. If you plan your tax correctly and input W4 appropriately, you should be able to get tax refund. Most Americans think the tax refund is a big payout and it is free. Instead of saving the refund, they will go on a spending spree. Tax that is being refunded to you is not free but your very own money. It is merely an over payment of taxes the previous year and the governments are just paying you back.

Instead of spending the bonus or tax refund, put them in a high-yield savings account, save them in emergency fund or invest them in either Roth IRA or traditional IRA. Better yet, if you have extra liquid assets available buy reputable equity stocks that pay dividends. These stocks will continue to generate passive income.

Automatic Deposit

Once you started working, most companies would encourage their employees to set-up a bank account because the wages would be automatically direct deposit to the bank. There are hardly any companies would pay wages in cash to cut administrative cost. Banks today are quite sophisticated in helping customers managing their money. On top of deposits, withdrawals and paying bills, most banks has a feature called “automatic transfer”. Everyone should use this feature to set up a periodic automatic transfer the wages you earn to a separate account. For example, after budgeting all my expenses, I was able to transfer $150 every pay period from my checking to my money market account. Instead of performing this task manually, I set up an automatic task that will transfer the funds twice a month. This method becomes so ingrained in my monthly budget that I hardly see the money but I know it is there should I ever need it.

A Penny Save is a Penny Earned

This is an old saying that is still true today. However, for this example, I’m not referring to saving your hard earned money in a savings account, which hardly pays any interest. I am referring to the actual pennies and changes you receive after a purchase. When we go our purchase anything with cash, it is extremely likely we will have changes in many denominations. And I can assure you that these coins will never be used again because they are real inconvenience and heavy to carry around. Save these coins in a container at home. Believe it or not in no time the coins will add up. Before the pandemic hit, my coins could easily amount to over $100 in 3 months. Once a year bring the coins to the bank and transfer it to an investment account.

Shop Smartly

Ever wonder why the brick and mortar stores are closing as fast as dead flies? Because more and more people are now shopping online. The benefit of purchasing online is it allows us as consumers to shop smartly. Apps today, such as Amazon or the Honey, enable us to look for deals before making any purchase. In turn, they allow us to save.

My family makes a lot of purchases online. If we find something that we like in the stores, we usually do not purchase the items right away. We would search Amazon to look for ratings and the price. The ratings will let us know if the items are reliable or if the price is right. This method allows us to cut our spending drastically. Another benefit is by not buying the item immediately allows to reconsider if the item is needed. It makes us question the need and want of the item thus further saving more money.

Eating Out

Eating out is one of the biggest expenses of any household. We are paying a price for the convenience of not cooking. My family used to eat out at least 4 nights a week. We gradually reduce it to 2 nights a week. The Coronavirus pandemic totally eliminate any chances of us eating out and I see our monthly expenses reduced by a third. Because of this I’ve been able to move the money that we did not use to the stocks.

I am going to use eating at a sushi restaurant as an example of price comparison. A roll of California roll at a restaurant costs between $5 to $8. On a sushi night, I would spend less than $15 in ingredients and make about 20 rolls of sushi. If I buy 20 rolls of sushi at a restaurant will probably cost me about $150 (taxes and tips included). That’s a $135 in savings!

No Gourmet Coffee

Prior to the pandemic hit I would see literally 20 to 30 people waiting for their coffee at Starbucks coffee. The prices for a beverage range from $3 to $8. There is a perception that Starbucks coffee are better then regular coffee and people are willing to pay premium for a cup of coffee. However, what people don’t realize that the coffee that they are getting is a big chunk of their monthly expenses. For example, using an average of $4 a cup of coffee you will have to pay about $120 a month to satisfy your cravings. Starbucks now offer k-cup coffee that you can make at home and they usually cost less than $1. That’s a $90 a month in saving that you can use to invest in.

I could go on forever to find funds to invest. At the end it is up to each one of us to take the initiatives to start saving and less spending. I am interested to hear from you of any other tips that work for you and help savings for the future.

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