Woman working on finances on the floor.

Saving And Investing: Tips For Success

Victoria Araj7-minute read
February 21, 2022

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You can either work for your money or your money can work for you. When you work a day job and most of your income is going toward bills, having enough to save might feel like a lofty, far-fetched goal.

You know if you want your money to work for you, you’ll have to get to a place where you can save and invest it. How can you reach next-level financial wellness and grow your money? In this 101, we’ll go over how to manage your money wisely, and we’ll offer a handful of tips for success.

When To Save And When To Invest

When looking into building your wealth, what are the major differences between saving and investing? While both options can grow your money, they do so in different ways. When you put money into a savings account, you earn money through interest. But you probably won’t be earning a ton that way. According to the FDIC, the average national interest rate for savings accounts is 0.09%.
While you can earn a little more in interest through high-yield savings accounts, money market accounts, and certificates of deposits (CDs), you won’t be able to earn as much over time as you would if you invested it. Putting money into your savings is also pretty safe. The FDIC insures up to $250,000 for each depositor, per bank. (If your money is with a credit union, it’s backed up by the National Credit Union Administration [NCUA].)You can invest your money through such options as retirement plans, micro-investing apps, robo-advisor platforms and discount stock brokerages. You can also invest by starting a business or getting into real estate. To keep things simple, we’ll focus on investing in the stock market.You earn money from the returns on your investments, which are tied to how well they perform. Historically, you can earn up to 10%. While you can expect greater returns on your money than with a savings account, there’s greater risk involved. The stock market is prone to ups and downs, and is more volatile than a savings account, so there’s a greater chance that you might lose your money by investing this way.So when should you save and when should you invest? You’ll usually want to start saving when you have paid off your high-interest debt, like credit card balances. The average interest on credit cards is 15.31%, according to the St. Louis Reserve.  The money you’d be spending on interest fees on your credit cards would be more than what you’d be earning in your savings accounts. As a general rule, you should put money into savings for short-term goals. These are objectives you’d like to reach within the next few years, such as a vacation, a wedding, starting a family, or a new car.
Typically, you’ll want to invest in long-term goals, ones that are 5 or 10 years away. Depending on your time frame, it could be for a down payment on a house, going back to school, or for your retirement. The longer you have your money in investments, the more time you have to ride out the highs and lows of the stock market, and your money could grow even more than if you just put it in a savings account.If you plan on saving your money for a goal you’d like to reach in 5 years or less, it could be more risky to invest it. That’s because when it’s time to make a withdrawal, you might lose money.

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How Much To Save Each Month

Ideally, your budget should include a category for saving and investing. After your high-interest debts are paid and your bills are covered, you’ll want to pay yourself first by putting some money away. By growing your money, you can provide a bedrock of financial security for yourself and your family.

How much you should save each month ultimately depends on your goals. Before you make a savings or investing plan, make a list of all your money goals. Next, figure out how much you’ll need, and decide when you’d like to reach that goal. As mentioned, you’d typically want to save for short-term goals that you’d like to reach in 5 years or less, and invest for long-term goals, that you’d like to hit in 5 years or more.

Let’s say you just finished paying off your credit card debt and would like to save $10,000 for your emergency fund. If you’d like to reach that goal in 2 years, you’d want to save $416 a month, or $96 a week. Want to hit that goal in a year? You’ll want to save $833 a month, or $192 a week.

How Much To Invest Each Month

Before you invest, you’ll also want to make sure you have an emergency fund stashed away. It’s generally recommended to have at least 6 months of basic living expenses readily available.

Just like with your savings, how much to invest depends on your goals. If you’re saving for retirement, how much would you like to have by the time you hit that age?

You might want to invest in the stock market for different reasons. And how much you put toward your investments depends not only on what you can afford, but how comfortable you are with risk, how clearly you’ve thought out your goals, and when you need that money.

How To Automate Your Savings

The easiest way to save is to “set it and forget it,” that way you can make sure you’re saving regularly and are on track with your goals. To automate your money in your savings accounts, just set it up once and you’re good to go. The process can vary slightly depending on the savings account and bank, but for the most part, you set a target date and amount. Next, you set up an auto-transfer for certain amount each day, week, or month to hit your goal.

After you auto-save, you’ll want to monitor the account activity every so often to make sure the amount you’re setting aside works with your budget and other money goals.

How To Automate Your Investments

Just like automating your savings, it’s fairly easy to automate your investments. If you’re investing through an employer-sponsored retirement plan such as a 401(k), you can set up automated transfers where a portion of your paycheck goes straight to your retirement account.

You can save either a set amount or a percentage of your paycheck. The neat thing about these types of retirement plans is that you can automatically bump up your contribution amount every month, quarter, or year.

If you’re managing your money through a micro-investing app or online discount brokerage, you can set up automatic investments just like you can with a savings app. While your returns depend on a number of factors, including fees, types of securities, and your time in the market, you figure out how much to regularly invest by knowing how much you can afford, and what the rate of return might be.

Saving And Investing Tips

Besides understanding the basics, the hardest part of saving and investing is having enough money to actually do either. Here are some ways you can free up some funds so you can save and invest wisely:

Avoid Fees

The less you pay in fees, the more money you have to grow. Avoid fees tied to late payments, ATMs and overdrafts at all costs.

When it comes to investing, some common charges include a management fee, expense ratios, brokerage fee, trade commission, and front- or back-load fees. Make sure to scour the fine print and ask plenty of questions before investing.

Look Into High-Yield Savings Accounts

High annual percentage yield accounts usually can be found at online-only banks. Whereas you don’t need to lock your money for an agreed-upon amount of time, such as with a CD, there are usually higher account minimums.

Take Advantage Of Your Employer Match

If your employer offers a match on your 401(k) plan, contribute enough to at least get the full match. Otherwise that’s money you’re leaving on the table.

Slash Living Expenses

To have more money for saving and investing, cut back on living expenses. This could be anything from housing to food to the cable bill. Go through each spending category and determine whether you can cut back somewhere. It might mean adjusting your lifestyle so that you spend less on eating out, entertainment, or buying clothes.

Start with the big wins, which means saving on the big three: housing, food, and transportation. Then go for the easy wins, which are steps you take to save that require a little bit of work but will save you a lot in the long run. For instance, saving $20 a month on your car insurance if you bundle it with your renter’s insurance adds up to $240 a year.

Side Hustle

Besides cutting back on your living expenses, take on a side job or two to rake in extra cash. Depending on your interests and skills, you can do anything from dog walking to reselling items. No matter what you earn, whether it’s $200 or $1,000 a month, save or invest all of it.

Commit To Saving ‘Extra Cash’

Extra cash might come in the form of a gift for your birthday or during the holidays, or from a work bonus or raise. Put some of that money toward a savings or investing goal. That way you can enjoy some of that money now, and the rest can go toward building financial security.

Improve Your Credit Score

A solid credit score means you’ll net the best interest rates and terms. In turn, that money saved on interest means you’ll save money on related fees. And the more money you save on interest fees, the more you’ll have to save or invest. You can check your free credit score and order a report through RocketHQ.

When it comes to saving versus investing, how much to do either largely depends on what you can afford, what your goals and time frame for each goal are, and your risk tolerance. By understanding the major differences between the two and determining ways to free up money, you’ll learn how to save and invest money wisely.

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Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.