Every January, financial goals rise to the top: more carefully constructed budget, safety fund and increased savings. However, there is a gap between intention and action that widens from one month to the next and most of the time due to lack of time, uncertainty and discipline.
Anyone can put their money to work. Archive photo
“Investing isn't about perfect timing, it's about consistency. And consistency is built through a simple planrepeatable“, the analysts point out, emphasizing that a smartphone and a minimum of financial literacy are needed for any person to be able to put their money to work. Even so, moving from intention to action involves more than will – a strategic plan is required.
XTB analysts have prepared some practical recommendations, so that the plan made at the beginning of the year is not abandoned in February.
Saving, the unshakable foundation
Before we choose to invest in our first stock or ETF, the number 1 priority is to save. Financial education shows us that saving should not be “what's left” at the end of the month, but the first “expense” in the budget.
Concretely, as soon as we receive the salary, we first put a part of the money aside. It is important to maintain a positive cash flow, that is, to earn more than we spend.
Overcome fear
Many new investors put off taking the first step because they feel they don't know enough. Financial education is essential (only 18% of EU citizens have a high level of financial knowledge), but perfection is the enemy of execution, analysts point out.
That's why you don't have to wait “right time”. Trying to anticipate the top or bottom of the market (market timing) is a losing game even for most professionals.
In other words: it is better to start today with 50 euros than to wait a year to start with 500 euros. The time spent in the market is more important than the time of entry.
Strategies to stay consistent this year
To ensure that the resolution set at the beginning of the year is not abandoned by February, some practical strategies can be considered, such as:
• Automate the habit
According to analysts, it helps to set up an automatic transfer to the investment account immediately after the salary is transferred. The reason is that we are no longer tempted to spend if the money is not in the checking account.
• Think in percentages, not fixed amounts
Start by investing 5% or 10% of your income. In the beginning, the goal should be habit formation, not immediate profit.
• Diversifies, to sleep peacefully
Fear of loss is the main driver of procrastination especially for early stage investors. If you divide your capital between different assets (stocks, bonds, commodities, cryptocurrencies), you reduce the risk of strong fluctuations that could cause you to quit too soon.
• Choose to continuously educate yourself
Investments involve risks, and the best way to manage them is through knowledge. Financial education helps us to separate the noise from the useful information and, above all, to control our emotions. In the market, fear and greed are the biggest enemies. Analysts point out that a logical and well-structured plan is the best defense.
Financial success is rarely the result of luck. Rather, it comes from discipline and consistency. In this process, the capital begins to generate visible results in the medium term. Then, over the long term, the cumulative effect can become really powerful, accelerating the potential to build satisfying capital in a sustainable and predictable way.
The 50/30/20 method for saving. What it consists of and how it works
The 50/30/20 method is considered one of the most effective personal budget planning formulas.
First of all, we need to make our personal monthly budget with the amounts that come to mind, divided by income and expenses. It is not mandatory that the numbers are fixed from the beginning, but approximated as best as possible, but it is important to go through them all, and then revise them.
Then we order the expenses according to the 50/30/20 method (50% – satisfying everyday needs, 30%, expenses for satisfying desires and 20% of the income we allocate to savings), according to the Money School.
It is about three simple steps, namely:
- 50% of the income is allocated to meeting needs such as: housing, daily shopping basket, utilities, bills, transport, etc. If we can't fit into the 50% percentage, it's a sign that spending should be reduced. If the income is enough so that half of it can cover these higher expenses, this is where you can save.
- 30% is allocated to satisfying desires: wardrobe, outings or vacations. If we can't go on a vacation, it's still good to enjoy small pleasures such as: a theater or movie ticket, books, music albums, etc.
- 20% of our income must be directed towards a savings fund. It is about the savings fund needed to repay debts, savings, unforeseen expenses and pension. The percentage of saving should increase with age: from 5% at 20 – 25 years to 10 – 15% in the most active period of life (30 – 50 years), so that after this age, the saving capacity exceeds 20%.
It is important that this percentage is not exceeded even if there are higher incomes.
The 50/30/20 model was popularized in the United States by Senator Elizabeth Warren and her daughter, Amelia Warren Tyagi, in their 2005 book, All Your Worth: The Ultimate Lifetime Money Plan.
