5 things you can cut from your budget to make room for investing

Posted in: News, Personal Finance

The same measure of care given to saving for a big goal (motor vehicle or home purchase) should be given to structuring an investment. A well-defined budget can be a material difference-maker in determining what you are able invest on a monthly basis. Before setting a budget there are a few key factors that will also affect how much you are able to invest. Namely, your disposable income, age and liquidity needs.

When it comes to cutting things from your budget, it is often the smallest things that make the biggest impact. Think about items that you spend on monthly that you could do without.

Disposable income

is defined as the amount left over after the payment of necessary expenses. What is done with your disposable income is ultimately up to you, but this is the easiest way to jumpstart your investment plan.

Younger investors

typically are at the lower end of their earning powers relative to their more senior counterparts, which means they will have less to put away than a mid-career professional as they may be making contributions to big financial goals like buying a car or purchasing a home, within the next 3-5 years. A point of note is that younger persons should be allocating a higher percentage of their disposable income to equity-based investments.

Personal liquidity

The speed with which an asset can be converted to cash generally determines the liquidity of an investment. If an investment account penalizes you for premature withdrawals or bears terms that require holding periods of a certain length, it is likely an illiquid investment. Your personal liquidity should be determined before beginning to invest, as you wouldn’t want to liquidate investments to address unforeseen events.

But does making small changes in how you spend really make a difference in the long run?

How substituting ‘a beer for a share’ a day could make you a millionaire:

The date 25-05-2012
Red Stripe Beer = JMD $400
100 Red Stripe shares = JMD $400 – share price JMD $4 per share

  • If you bought a beer every day after work you’d spend JMD $2,000 which equals 500 shares per week.
  • By May 25th 2015, three years later you would now own 78,000 shares.

When Heineken acquired Red Stripe and delisted it from the Jamaica Stock Exchange the closing price was roughly JMD $32 per share.

Which means in three years your shares would be worth JMD $2.496 million dollars at buyout!

Now that you have the basics down and have some perspective it’s time to start looking at where you can begin to cut costs in your everyday life, it may be easier than you think.

1. Manage your subscriptions

Does anyone even watch television anymore? Online services like Netflix, Amazon Prime and Hulu+ have made it easier than ever to catch your favourite television shows on your own time. Want to watch the news? Local news stations such as TVJ and CVM stream the news online and the same goes for CNN. Sports fans can opt to watch their favourite games at a sports bar or make an event of it by swinging by a friend’s home.

2. Eat out less

Eating out often can quite literally eat through your budget. Cooking at home is not only more cost effective but it is most times better for your health. Busy professionals can experiment with meals that take 30-minutes or less to prepare. Cook enough for lunch the next day, to avoid spending while at work. Bringing your lunch to work can save you at least JMD $2,000 per week, that’s JMD $8,000 per month.

3. Switch to a postpaid phone plan

Depending on your plan you can save a few thousand dollars each month by switching to a postpaid mobile plan. These plans usually have limits that allow you to keep your overall bill within a predetermined figure.

4. Choose budget friendly entertainment

Having a budget doesn’t mean you can’t have fun, it just means that you need to be creative. Keep an eye out for free or low cost activities you can do for fun. Many venues have weekly events they offer to the public to increase foot traffic. Consider half-off days at the movie theatre or special drink nights at your favourite bar.

5. Bottled water

Staying hydrated is important for your health, but it’s a sneaky way to bleed your pocket. Instead, invest in a durable water bottle. You can refill bottles at the water cooler at work during the day. For as little as JMD $900 you can stock up on enough drinking water to last you month by refilling nine 5-litre bottles or three 3-gallon bottles at a water dispenser located at your local supermarket or at a water store.

When it comes to cutting things from your budget, it is often the smallest things that make the biggest impact. Think about items that you spend on monthly that you could do without and always be open to exploring cost effective alternatives to products or services you already use. Most importantly, ensure that the cost savings are invested and not merely assigned to new expenses!


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