7 Ways to Invest Some Extra Cash

August 8, 2018August 8, 2018 ~ Inge Natalie Hol ~ Leave a comment

Last month I received a small bonus from work and after the initial excitement of having some extra money as well as the appreciation and recognition for a job well done, I needed to decide what to do with it, as I didn’t want to blow everything in one go.

How could I make the most of it and allocate it in the best way possible to get bigger long-term results from it? Should I save it, use it to pay off debt, invest it or invest it in myself or my company to generate more income with it?

Here I’ve put together some key points that I hope will be of use to you for when you too find yourself with a little bit of extra money – maybe due to a (small) pay rise, a present or just because you’ve perfected your budgeting skills.

Here are some of the advantages and disadvantages of what you can do with some little extra cash:

Build an emergency fund

What: Save together $1,000 (or the equivalent in your country).

Pros: An emergency fund will allow you to pay for unexpected events without having to go into debt or eating into your savings. I also recommend to build a 6 months living fund with time to cover your expenses for up to 6 months if you find yourself without a job for a prolonged period of time.

Cons: Don’t put more than needed in this savings account, as it will likely not be making you any money due to low interest rates, so once you’ve hit your target amount, put any extra money elsewhere.

Pay off debt

What: Make an extra payment towards your debt, such as a credit card, mortgage or student loan, especially if you have any debts with an annual interest rate over 5%.

Pros: By reducing your outstanding principal, your interest charges go down and so will the long-term effects of compounding interest. The long-term goals of becoming debt-free also means more independence and peace of mind.

Cons: Paying off debt reduces your expenses in the long run, it doesn’t create more money. If you only have outstanding debts with a fairly low interest rate (4% or less), you might get a higher return-on-investment in other ways, such as investing it or generating another income stream with it.

Save

What: Put the money in a savings account to generate interest.

Pros: It gets you a little closer to your savings goals and it will make you some extra money over time due to interest and most importantly: compounding interest.

Cons: Interest rates are extremely low at the moment and below most inflation rates which means that not only will that money sit idly without making you much money, with time it will also lose value.

Contribute to you pension

What: Make an extra contribution to your private or workplace pension plan.

Pros: By adding more to your pension you’ll not only increase your pension fund, it also allows for it to grow even faster due to increases in returns and its compounding effects.

Cons: Any money invested in your pension plan will not be available until your retirement, you essentially lose access to that money for a long time (or you might be able to take it out before but will need to pay hefty fees.)

Invest in a brokerage account

What: Invest the money in your own private investment account to generate interest and dividends.

Pros: Increase your investment funds, as well as the amount of dividends and interest generated to compound without losing access to this money.

Cons: You likely won’t benefit from the same tax advantages that pension funds give and you have to manage your own investments.

Invest in yourself

What: Invest in your individual capital by spending the money on a course, attending a conference or buying books to gain new knowledge or develop your skills.

Pros: Can be tailored to your needs and interest, and can have a long-term effect on your employability, professional development and / or earnings.

Cons: This strategy can be time consuming and prove difficult to see direct financial effect.

Invest in another income stream

What: Set up a company, write a book, buy a property-to-let or find a different way to create another income stream with time.

Pros: Can provide you with a reliable, steady stream of income on the side.

Cons: Can be expensive, hard work, uncertain and unsuccessful.

Which of the above options you ultimately choose depends on your current circumstances: your dreams, plans, job, how much money you have to spend, the risks you want to take, how much time you can and are willing to invest, your family situation and many more. I hope however that the above helps in giving you a better idea of the various options to help you make a decision!

In addition to using your money wisely, if you feel you want to also enjoy a little bit of that extra money now and not just invest it in your future, consider sticking to the 50% rule: invest 50% and keep the rest to spend freely on whatever you want now. Or adapt this to whatever % you want: invest 70% and keep 30%, invest 20% and keep 80%..Whatever you feel happy with!

Step 85: Plan your Money Allocation Strategy

June 5, 2017March 26, 2017 ~ Inge Natalie Hol ~ Leave a comment

Step 85 of the 100 steps mission to Financial Independence: Plan your Money Allocation Strategy — Step 85: Plan your Money Allocation Strategy

A difficult question that many people on their mission to financial independence quickly encounter is “where they should get their money to work for them”: You’ve managed to cut down a little on your expenses, or to up your income or earnings from a side hustle. But the question as to what to do with the extra money you now have remains. Let’s review some of the avenues on how to “make money with your money” that we have looked at on this mission:

Paying off debt – saves you money on interest and compounded interested paid over the years.
Saving – generates money due to interest received and the power of compounding interest over the years.
Investing – generates money due to capital gains, interest received or dividends.
Pensions – builds up the income you’ll receive after your retirement age
Personal capital – increases your earning potential as a professional or entrepreneur.

These are the most common strategies to pursue in order to leverage what your money can do for you.

But where to start? Say you saved $100 this month and that you are happy to invest this money into your future and future earnings, where do you actually put this money? Which of the above options do you choose? And how do you mix these strategies?

If you haven’t yet fully read the previous steps on the above mentioned strategies, I invite you to read those first before continuing reading this step, to better understand all the pros and cons of each strategy. Just come back once you’re done!

Money allocation

The question of where to allocate your money doesn’t have to imply an “either …or…” situation. You can start investing whilst still having a mortgage. You’ll want to save an emergency fund together whilst still paying off credit card debt. And once you start investing in your personal capital, you’ll likely want to keep that up on a fairly regular basis and the fact that you are investing in the market doesn’t rule out this option. Continue reading “Step 85: Plan your Money Allocation Strategy” →

Step 69: Teach your Children about Finances

April 10, 2017January 28, 2017 ~ Inge Natalie Hol ~ 1 Comment

Step 69 of the 100 steps mission to financial independence: Teach your Children about Finances — Step 69: Teach your Children about Finances

In the previous step we looked at how setting aside even small amounts of money can give your (grand)child(ren) a very nice mini-fortune by the time they turn 18 if invested well. Of course you (or they) might be unlucky and the market might just hit a bad year when they turn 18 (or 21 or 25) but who’s to stop you from waiting another year or 2 until the market has recovered again before you hand over the investment account?

But then what’s to stop them from spending all of the money – the money that you set aside deligently for years, making the most of that compounding interest – in one weekend, on one holiday or on a (in your view) stupid purchase?

Of course the problem with this is that you might be skimping and saving to get this money together, but once you give it to your child, remember it is their money. Whether they splurge on a luxury vacation, use it to fund their college or as a first downpayment for their house is ultimately their own choice..

That said, as a parent or grandparent you have a responsibility in educating your children about finances. Funnily enough we are totally cool and understanding of having to teach our children social skills in order to make friends and to respect others, help them with any maths or French homework and teach them basic personal care skills like cooking and the importance of having showers, but the financial education is often neglected. Whether people don’t want to bother innocent children with grown up matters, think that school will teach them this stuff or just generally feel uncomfortable about discussing money with their children I don’t know, but teaching children about money is an important role any parent has. And if you do your job well and teach them the real value of money, your children might be less likely to spend all of that money you gift them when they turn 18 in one go.

So let’s look at some ideas on how to teach children the real value of money from an early age on:

On a day out, or weekend away or even a holiday, give children a mini budget for themselves or tell them that as a family you have a total budget of say $40 that together you need to decide on how to spend. They get to vote (or decide) whether to have a simple sandwich and some money for an ice cream and a small souvenir or whether to go for that slightly fancier meal but not have any extra money for an ice cream nor souvenir. This helps them develop skills in budgetting.
Make them aware of bills that need to be paid, such as utilities and get them to play their part in turning off lights, closing doors and not letting the tap run when brushing their teeth.
Turn grocery shopping into a competition by finding offers, 3-for-2 deals etc.
Give them a small amount of pocket money from an early age on to get them to save up for a bigger purchase they want. It teaches them the value of saving, planning and prioritizing.
Open a savings account and get your child to deposit money in it, even if it is small amounts. Explain interest and compound interest to them and get them to see their money grow.
When your child is a little older, explain the concept of the stock market and investing and mention the investing account that you have opened in their name so they can also see how their investments are growing. Show them to sit tight when the market falls and the importance of patience on the long run.
Teach children about debt and how this is expensive in the long run. The best way for them to learn this is by giving them a small loan and charging interest on it. A tough lesson to learn but it will be a very valuable lesson. Even if they end up paying $5 on a loan of $10, those $5 will teach them a life long lesson on how interest and compounding interest on a loan will ultimately be a killer to their personal finances.
Go through credit card statements together with children or spend your weekly administration and filing system together with your “personal assistant” to teach them the importance of checking financial statements regularly for errors and to stay up to date on how (un)healthy your finances are.
Consider some type of “savings match” or interest you give children for every dollar they save if they haven’t yet got a savings account. This could be done monthly by showing you how much they have saved and after you count it together you give them a certain amount of interest or match their monthly contribution.
Explain to children how we are constantly tempted to spend money by adds and peer pressure. Teach them how these adds work and get them to evaluate whether they really need that new gadget or toy and whether it will add new value to their life.
Get children involved in sharing their wealth through donating to charities or fund raising for charities so they get to appreciate that there are many others who are far less lucky than they are and that that they can make a difference to the world by giving some of their money away or by getting involved in deciding which charity you should donate to.

Step 69 – Involve your Children – in detail:

Discuss with your partner the importance of teaching your children about the value of money and agree on a basic approach to this. It is important to discuss this and be aware of each other’s involvement and ideas so that you don’t clash over this.
Consider a set time a week, maybe at the weekend, which is dedicated to finances. This could be 30 minutes in which you discuss something new, go through a new target for the week or count savings and update financial statements. Depending on your child’s age these activities might evolve into more complex activities and the 30 minutes might become longer.
Find a balance between teaching your children the value of money, saving and investing without taking away from the fun. Make sure not to turn ALL of your fun family days into skimping or budgeting days – kids should also be able to enjoy these days! Don’t overload your children with information but see it as a step-by-step progression that takes time, skills and awareness to develop (a bit like compounding interest come to think of it!).

If done well, these finance lessons can become a great headstart for your children in life as it gives them so many skills that others might take years to discover by themselves when they are in their 20s and 30s. Just make sure to make it appropriate to your child’s age and awareness. Happy teaching!

Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.

Step 62: Warranties and Service Contracts

March 16, 2017March 18, 2017 ~ Inge Natalie Hol ~ 1 Comment

Step 62 of the 100 steps to financial independence: Warranties and Service Contracts — Step 62: Warranties and Service Contracts

When you make a big purchase such as a new car or appliance for your house, the selling company often provides a warranty on the product. The warranty is a guarantee for a set period of time during which the manufacturer promises a correct functioning of the product and to replace or repair the product if the product is faulty.

Warranties are very important to understand and keep as they can save you a lot of money and worries if you ever need them. This step will look at warranties and extra warranties in detail, so you can assess any current warranties you have and to allow you to compare and evaluate warranties on any future purchases.

What a warranty typically includes

Normally a warranty will specify and /or include the following:

How long it is valid for. For some products this might be no more than 6 months, other products might be covered for several years.
What circumstances might void the warranty. The manufacturer often includes reasons why a warranty might cease to be valid, such as not having done regular maintenance check ups and servicing or using the product incorrectly.
Services included: what happens if the product is faulty? Will it be replaced, repaired or will your money be refunded?
Services excluded: this might not actually be stated in the warranty, but make sure you find out what is not included if your product fails. Think of costs to do with transporting the product to the shop or factory, labor charges etc.
Does it include costs you might have as a consequence of the product being faulty? For example if your washing machine floods your house, will the damage to other objects and furniture be covered, or if the fridge-freezer breaks will you be reimbursed for any of the contents gone off?

Continue reading “Step 62: Warranties and Service Contracts” →

Step 29: Start a coins jar

December 19, 2016December 3, 2016 ~ Inge Natalie Hol ~ Leave a comment

Step 29 of the 100 steps mission to financial independence: Start a coins jar — Step 29: Start a coins jar

Maybe you had a coins jar at some point in the past, possibly when you were a child, and like me you might have looked at it in anticipation every time you put in a coin, hoping that single penny would somehow magically fill up the jar to the top… or at least get you to your savings goal in order to buy that new Nintendo game… I at least had one as a child and definitely enjoyed the process of saving up and seeing my little nest egg grow. But despite reading about coins jars on many money and finance blogs, I never started this in my adult life, as I wasn’t convinced or indeed saw the point of it, as I didn’t think those coins would ever get me anywhere near my savings targets with the amount of change I’d put in.

That was until recently when I read about this concept again in MJ DeMarco’s book “The millionaire Fastlane”. DeMarco agrees that a coins jar, or a change bucket as he calls it, won’t actually make you rich and definitely won’t make you a millionaire. But he does express two advantages that having a coins jar can give: Continue reading “Step 29: Start a coins jar” →