Find Money in Your Budget to Invest Right Now (Part 1)
There’s a very good chance that if you look at your own budget you can find extra cash to start investing. Even $25 a month would be a win. And yes, it sounds impossible (after all, you probably feel like you need more money and don’t have any to spare). But there’s some magic in actively trying to find a little extra cash to invest.
Of course, do not invest unless you have your necessities (fixed and necessary monthly expenses like housing, utilities, transportation, insurance and of course food) all covered. And don’t dip into money that you’ll be needing within the next 5 years.
Instead look for places you can trim. There’s almost always going to be places to trim even if you think you can’t. We’re never being as logical or careful with our money as we think we are. In fact, research shows our impulse buys alone (a lot of them on junk we don’t need) add up. One study showed that we only use about 20% of what we buy (I wrote about it here). So the only way to find out the real scoop is to track your spending for a month—even a week will be enlightening.
Places to find extra money
This may sound like that awful ‘cutting out lattes’ idea (I don’t believe in cutting out the things that bring you joy—maybe just scaling back). But the truth is, small changes in your budget—shedding the stuff that’s not doing anything for you—can create positive cash flow for the things you want. Including investing. It’s not uncommon for financial coaches (including myself) to help clients—who thought they were stretched to the limit—find $100 or $200 a month to invest. But I’d consider it a win to find even $10 more a month to invest because it starts a savings habit.
That said, here are some places I’ve found money in the budget.
- Review your W-4. Many people have too much withheld from their paychecks. If you’re getting a tax refund, you may want to review and adjust your withholding. This can mean more cash in your paycheck for saving or investing.
- Make a tax-deductible contribution to a traditional IRA. This means you get to invest and grow the money you were going to be paying in taxes. There’s a maximum you can invest each year and you must qualify. You also have to put it and keep it in a qualified traditional IRA account, but it’s your money for retirement. Learn more here.
- Save money on your taxes. Check out this Kiplinger article for ideas. There are many ways to save on taxes, so it’s worth researching.
- Having a serious strategy when food shopping. I was able to save $100 a month when I went in with a list and stuck to the list. This is a hard one because there’s something tempting down every aisle. But those extras add up and can keep you from the peace of mind that is your nest egg a.k.a. financial freedom fund.
- Calling your utility companies to see if they can offer a lower rate. It sounds cliché, but often they can offer a lower rate. A friend of mine just saved herself $150 a month this way. Some have saved by switching to another provider. I’ve seen a lot of people getting rid of their cable TV altogether and going with Hulu or Netflix. Or using their Internet to watch TV (there was a mile-long thread about this on my Facebook newsfeed, so it’s a popular pursuit). One friend who got rid of cable TV but kept her Internet is saving $200 a month.
- Negotiating a better rate on your mortgage. It could be worth checking into.
- Getting rid of your home telephone line. A lot of folks I know don’t use their landline at all. It’s sitting there not being used and costing them. If that’s you, that may be one place to cut expenses (in your area you may be able to bundle phone service with your cable services, which can be cheaper than the phone company’s pricing).
- Check your insurance policies. It’s good to do yearly reviews of your insurance with your agent to make sure you’re not paying for more than you need or want. This can happen with homeowners or with auto insurance if you’re driving less, have moved or the value of your car has gone down).
- Be a mindful spender. This is huge. In fact, it’s the best way to find extra cash because it encompasses all of the above. It involves making sure every dollar is going toward your goals. It also means (gasp) having a spending budget. It doesn’t have to be complicated, and can be a major eye-opener. Figure out how much comes in and how much goes out monthly for necessities and fixed expenses. The balance is your cash flow, a.k.a. your spending-on-everything-else budget. Do the numbers once (in Excel, for example) and adjust it easily as needed. Use this to decide how much you’ll budget for saving and the rest goes to non-necessities spending. Take it to the next level by tracking that spending. That’s when you’ll want every purchase to prove it’s worthiness. Best practice: Build savings into your non-negotiable fixed expenses.
I hope this gave you even one great idea to run with. I’d love to hear your plan for finding more money in your budget, or what has worked for you. Please share your thoughts below. Your comments can also inspire others.
This post is a two-parter. So please stay tuned for Thursday’s post on ‘What to do once you find extra money to invest.’
If you found this post helpful, please Like, Tweet and Share, and help inspire others. As always, thank you for reading!