How To Earn Superior Investment Returns By Investing In Your Budget & Lifestyle
Many of us fret and worry about how much money our savings or investments are going to return. Should we invest in ABC stock because of it's growth potential (but it has a lousy dividend) or would XYZ stock be better because the dividend yield is significantly higher?
What about property, what about property funds, should we invest in residential, commercial, foreign etc. So many questions, all with answers only the future knows.
But what if there was another way to get better investment returns? In fact, what if there was another way to get better investment returns starting with NO CAPITAL. Yes, a way to earn 10% or higher without putting any money at risk, or indeed having any money. Impossible, no, not when you screw your head on backwards and look at things in a different light.
The Secret To Better Investment Returns Is To Evaluate Your Lifestyle
If you track and wisely spend your money then you can save and hence earn far more (with zero risk) what most people could ever hope to return over time by investing in the stockmarket, let alone what your cash could be earning in a savings account.
- If you can save £100 a month on a £1,000 a month budget then that's an extra £1,200 a year in cash
- £1,200 is what a savings account will pay (4.50%) on a £26,000+ deposit!
- But the total return is actually higher because there's no tax to pay on the £1,200
- Also, the £1,200 actually earns because you can place it on deposit earning at least 4.5%
- Or the equation can be looked at another way and say that the £1,200 is equivalent of a 12% return on £10,000
- 12% is an excellent return for any investment let alone one that has no risk and demands no capital
How To Save Money
Saving money can be done in a myriad of ways and with the internet there really is no excuse to not just seek out bargains but also get a better understanding of what you're buying so as not to overpay or get ripped off. For example -
- Payment Protection Insurance is generally regarded as one of the worst and most expensive personal finance products one can be sold
- The marketing drivel behind these policies state that if you lose your job your loan or credit card repayments get taken care of
- True to a certain degree, but as many people have found out once they've been made redundant the small print excludes them from actually claiming
So anyone with PPI can normally start to save £5-£20 a month right away by cancelling these useless policies. And anyone using the internet to find out more about PPI would either be shocked by what they read or find that if indeed they really needed it, it was far cheaper to apply for an independent policy at around a 60% discount of your bank's quote.
Other ways to save money include -
- Listing your largest monthly expenses and then working down to the list to see what can be saved, this should be your first move
- For most people their mortgage is the single biggest monthly bill so perhaps look at reducing the interest rate and monthly payments by remortgaging
- Petrol these days is another financial headache with most cars costing around £40 to fill up, save 1/2 tank of petrol a month by driving less miles or slower/smoother and that's a significant proportion of a £100 a month saving goal
- Looking to buy a large new purchase, perhaps a new bed or sofa? Work the internet or visit some local stores and see if they'll do a deal for cash
- For other significant purchases (perhaps a new computer) use a Credit Card that offers 0% interest on purchases for a month (see page 5 of this newsletter for details on how we used this strategy to pay for £1,600 worth of goods)
- Got debt balances on credit cards, try and use the 0% balance transfer deals or perhaps transfer all debts to one card that offers a fixed life of balance interest rate
- Is your bank ripping you off when/if you go overdrawn? If so change accounts
Summary
Earning 10% or more on top of your income is not hard to do if you work at it. So instead of trying to chase the next big investment idea, stock or stockmarket (which no doubt carries significant risk) do the easy thing and start to look at your monthly budget and general lifestyle. This is the area where you can start to save and hence make the easy money with annual returns generated that even the top fund managers would be envious of.
And all this with NO risk and NO money upfront.
What's The Point In Saving Money When It Never Seems To Materialise
But herein lies a problem with saving money - we often never actually see any of it because the money saved just gets mixed up and churned around in our wallets or bank accounts.
- Say you smoke or like to drink a fair amount, so you cut down drinking by 50% and stop smoking altogether
- With a pack of cigarettes at £5.00 (you smoke a pack a day) that's an incredible saving of £1,825 a year which is around 7% of the average UK salary (£25k)
But what you often hear from people who take actions similar to these is that yes they're saving a lot of cash but just where is all this extra money? Yes, the money is saved but you'll only notice it if you start to separate it from your general money, ie that which is in your wallet or current account.
With Saved Money Setup Another Account & Pay In At Least 50%
For most people the only way around this problem is to setup a completely different bank account and pay in at least 50% of whatever is saved into it. So with the smoking example pay a minimum of £17.50 a week to a savings account. But make this simple to do with internet banking. Make sure -
- You're banking with a bank that offers good internet banking
- You have internet banking activated on your account and start to use it, and
- Your account(s) have the ability to easily transfer money with a couple of mouse clicks. Personally we use Natwest, The Nationwide and ING Direct and transferring money between sub accounts and different banks couldn't be easier
Of course, if you can transfer more than 50% of any savings generated then all the better. But with the £35 a week saved in the giving up smoking example even paying £17.50 a week to a savings account will soon have it topping £500, and nearer to £1,000 within a year.
However trivial it may seem also try and do it with small amounts of money, save £5 in Tesco's on 2 cases of beer, put £2-£3 into an old jam jar paying this money into your deposit account on a monthly basis. £2-£3 in extra savings a week might not sound a lot but as we've seen above an extra £200 a year is what ING Direct would pay on £4,400 in savings.
Summary
A penny saved is a penny earned so goes the old saying and it really is true. But if you actually sit down and analyse what £100 is actually worth as an investment return (say you earned that in interest from a savings account paying 4.50%) many people are shocked when you tell them the answer - £222.
So the first key of better investing is to do the simple and easy thing and just invest in your own personal budget and spending habits because it's easy to earn superior returns.
