Finance Money Saving Tips

How to Save and Invest $5 a Day

How to Save and Invest $5 a Day

When you’re writing down a list of goals, things to do, or even New Year’s resolutions, don’t you always include the item “Save money”? For those who have above average salaries, this might be an easy task but for those who are living on a paycheck-to-paycheck basis, setting aside a percentage of your income to save and invest is very difficult.

The bad news is that if you don’t start saving money right now, you would not have that financial security to rely on in case of emergencies. Remember that your emergency savings should be different from your retirement savings.

For couples who are raising kids, a small portion of the household income coming in should also be invested for college expenses. This may sound like a lot of funds getting slashed off your regular household maintenance budget – but it is necessary if you would like to have funds to spend during emergency situations, and for the future.

What Can You Buy with $5, Anyway, & Why Invest It?

Now is as good a time as any for you to initiate saving and investing – so how do you actually start?

Fortunately, you can always begin with very small savings, which you can invest and grow through compound interest and other investment methods. Let’s start with the simplest technique for you to grow your money by saving a basic $5 amount per day.

Here are some of the things that you can cut back on – at least for one day – so that you can start saving $5:

  • A magazine subscription
  • A new accessory
  • A cup of fancy coffee or latte
  • A bunch of fresh flowers
  • A bottle of beer
  • Bath or makeup products
  • Cigarettes (if you’re a smoker)
  • Exotic fruits
  • Fresh herbs
  • Pens
  • Thrift clothes
  • Used books

How to Save and Invest $5 a Day

You don’t want to give up these little luxuries every day, so where else can you get the extra $5 which you can save and invest? What about negotiating your rent talk with your landlord? If you have been staying in the same place for a good number of months now or even years, you should definitely negotiate for a lower rate.

If you’re a couple whose kids are all moved out, you can also downsize or downgrade your home so that you will have lower expenses – and not even have to consciously think about saving $5 per day. You can also cut back on expensive dinners out, you can buy a cheaper car, get cheaper haircuts, and negotiate the prices of the goods that you usually consume if possible.

Next, why should you invest those $5 that you will be saving every day? There are plenty of ways to invest but if you can only spare $5 out of your hard-earned money for your savings funds, you need to invest it wisely. 

There is an online tool from The University of Illinois Extension which you can use to calculate how much you will have by the end of X number of years, based on a certain interest rate.

Here’s the link and an example:

  • If you will invest $5 per week for 10 years and the interest rate is 5%, you will save $3,434.00.  For the same amount and period, you will save $4,558.00 at an interest rate of 10%.

This means that if you will start saving those five precious dollars right now, you can make your money work to your advantage by investing it long-term and with compound interest.

Essentially, still according to the University of Illinois Extension website, there are three key points to saving money:

  1. Saving small amounts of money will add up over time.
  2. Saving money regularly will allow you to successfully save.
  3. Compounding interest is one of the best ways to help your money grow.

One more thing that you need to remember before stashing away those $5-per-day savings somewhere is that you do need to take care of your credit first. Some finance experts argue that you cannot save and pay your debts at the same time.

However, it’s entirely up to you to manage your finances. As long as you are paying off your credit card bills and you are not allowing yourself to be charged any more than you have to on late fees, interest rates, and other finance charges, you should be good to go.

Where to Invest Your $5/Day Savings

Now that you already have an idea about where you can get those five dollars to invest, the next question is: exactly where would you put the money? If you already have good credit, your bills are being paid on time, and you have the financial protection you need in terms of insurance, you can proceed with the saving and investing part. Take a look at a few options on how you can invest your $5-per-day savings:

  • Certificate of Deposit
    So you are steadily saving $5 per day and you already have $50 in your pocket. You can put this money as a deposit in a local credit union account. After forty deposits of $50, you will have $2,000 which you can use to buy a CD or Certificate of Deposit. CDs are low-risk investments for those who do not plan to immediately use their money. If you’re saving up for a house or car down payment, for example, you can safely put your money on CDs.  When taking this route, make sure to check on the annual percentage rate as well as the annual percentage yield.
  • Index Mutual Funds
    Index mutual funds are a common investment representing all aspects of the market. If you want to put your $5/per day savings to good use, you should definitely consider going for stock index mutual funds. For a lower cost option, there’s the no-load index which is also a form of stock mutual fund. For this, there are no charges involved when purchasing the funds.
  • Retirement Plans
    If you have yet to jump start your retirement savings, you can put your $5/day savings on an employer-sponsored retirement plan. In most cases, your employer will match the $25 per week that you will invest and this is usually given as part of an employee compensation package. What’s good about taking this option when investing your money is that most retirement plans are tax-deferred.

How to Save and Invest $5 a Day

No matter which of these options you end up choosing, it’s important to do your homework first. As compared to savings accounts, for example, mutual funds are at a lesser risk of being used up because of your impulse to buy.

If you will invest in bonds, mutual funds or stocks, there is a tendency for the market to go up and down depending on the status of the financial industry. If you wish to invest your money and allow it to earn on a long-term basis, a safe investment with long-term benefits will work best.

Read:  10 Smart Ways to Become a Billionaire and Stay That Way

Additional Tips for Saving & Investing

If you want your money to really grow, it does pay to start saving small and investing the funds in a long-term savings instrument. Instead of procrastinating and telling yourself many times over that you’ll start saving money when you have extra funds, it’s better to set a deadline for yourself and do it right now.

To help you out, here are some more saving and investing tips that you can keep in mind:

  • To resist the temptation to overspend, always have your list of long-term and short-term goals handy. Whether it’s your kid’s college education, your retirement, a new house or a new car that you are saving up for, picturing that goal will make you more motivated to save and invest.
  • To budget your money accordingly, you need to learn how to recognize the needs versus the wants. Naturally, the needs are basic expenses for food, utilities, rent, transportation, clothes, and other bills. The wants include items that you would not usually buy for yourself but are simply a part of your lifestyle. This includes your entertainment budget, designer clothes or shoes, weekend trips or vacations, extra gadgets, and self-pampering activities. Budget your money based on the needs versus the wants. If you eliminate most of the wants, you can have the extra funds to save and invest.
  • Again, if you keep on putting off the task of saving your money, it is better to set a deadline for yourself. Mark a date on your calendar when you would have to start saving $5 per day – and stick to it. Once your daily savings has grown, you can deposit the funds on the investment instrument of your choice. Perhaps the most crucial part is leaving your money right there and allowing it to grow.

Five dollars may not be much but if saving money is something that you keep on putting off or delaying, it’s definitely a good start. So what are you waiting for?

Start thinking of the small items that you can give up right now so that you can start saving – and investing – $5 per day. In no time at all, you will see that money grow into something that can give you better financial security.

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How to Save and Invest $5 a Day