Best Strategies for Saving and Investment: How to Build Wealth Over Time?

Eco_Miser

zubairrafay02 said:

Hey everyone,

Here are a few questions I have:

What’s the best approach to saving money in the short term? 

• Don't spend unnecessarily
• Make a budget, so you know what you are spending
• pay yourself first ie move your budgeted saving to a high interest saving account each time you get paid. The best savings accounts for saving from income are those known as Regular (or Monthly) Savings, and there is a specialist thread to keep up to date and discuss the latest issues.  https://forums.moneysavingexpert.com/discussion/6576962/the-top-regular-savers-discussion-thread/p1

When is the right time to start investing, and how should a beginner approach it? 

• When you've cleared you debts except mortgage, student loans, 0% credit and current month credit card (that will be paid by the due date) AND have sufficient accessible savings to cover replacing any necessary equipment (car, boiler, roof?) and keep you going if you can't work.
• Except investing in a pension - do that as soon as you're eligible, get free money from your employer. Know what it's invested in and if necessary change the portfolio.
• Keep it simple. The first two responses here cover that. 

How do you balance risk vs. reward in investments? Any tips for managing risk, especially when starting out?

• Everything has risk, but don't chase reward to silly levels of risk. 

What are some common mistakes beginners make in saving and investing that I should avoid?

• Thinking that you understand what is happening. The big boys know sooner and react quicker than you could ever do.

Should I prioritize paying off debt before investing, or can both be done simultaneously?

• You should not be paying interest on debt greater (or equal) to what you're likely to make on investments.

Any advice on how to grow wealth gradually while staying financially secure would be much appreciated! 😄

Thanks in advance!

Answers in italics above

Bostonerimus1

The answer is quite simple, but not necessarily easy; just spend less than you earn and invest for long term growth.

Yes, pay off high interest debt like car loans and credit cards as a priority. If you are young invest in a Global equity index fund, as you get older you might want to add a bond index fund, or just use a multi-asset fund like the Vanguard Life Strategy series and expect to stay invested for decades, do not trade!!! So:

1) Do a budget
2) Spend less than you earn
3) Avoid debt other than mortgages, pay off any high interest debt you have.
4) Save 6 months spending in a bank saving account.
5) Put as much as you can into your workplace pension plan, invest in low cost index funds.
6) Put as much as you can into your ISA, invest in low cost index funds.
7) Put as much as you can into a general investment account, invest in low cost index funds.
8) If you are saving to buy a home use schemes like LISA if you qualify and maybe hold off on steps 6 and 7.