It’s Never Been Easier to Become Financially Savvy
“Teach her about how money really works, and she can change the world.”
– Linda Davis Taylor
If you’re like most people looking to grow their wealth, you spend some time thinking about investing. And while you love the idea of making your money work for you, something gets in the way of taking the next step.
We hear you. Some common roadblocks to financial freedom are fear and uncertainty.
No matter where you are today, our top seven investing hacks will empower you to start growing your portfolio and create a more fulfilling tomorrow. With clear strategies, a consistent plan, and enough knowledge about how money really works, anyone can break through the glass ceiling and build generational wealth. Get ready to change the world!
1. Start Investing Now
Take advantage of compound interest and start investing today. The earlier you start, the faster your money will start working for you.
As you may know, compound interest is the driving force behind investing. Albert Einstein is credited with saying, “Compound interest is the most powerful force in the universe. He who understands it, earns it; he who doesn’t, pays it.”
So what is compound interest anyhow? Picture the exponential growth curve from your high school math class. That’s what happens to your money when you invest. The interest you earn each year is added to your initial investment, so you're earning interest on top of interest.
For example, let’s imagine you save $1,000 and put that money into an account with 5% annual interest. The first year you make $50, leaving you with $1,050. In the second year, you earn 5% on your principal, plus interest. So the second year, you earn $52.50. That tops your account up to a total of $1,102.50.
If you leave the initial investment in your account for 30 years, your account will grow to $4,322 — without adding any more money. Essentially, you're earning more and more money each year on your initial investment plus the interest you've accrued — $50 the first year and $205 the final year.
The more you invest upfront, and the longer you allow your money to work for you, the more money you’ll make. To better understand this concept, play around with a compound interest calculator like this one at NerdWallet.
2. Open A High-Yield Savings Account
As you begin to clarify your investment goals, set aside three to six months of living expenses for emergencies and any additional cash you don't plan on investing right now. Then, put it away in a high-yield savings account so you can earn while you save. Unlike traditional savings (which hover around .06% APY), high-yield savings accounts offer much higher interest rates (from around .40% – .65% APY).
The advantages of high-yield savings accounts include:
Building an emergency fund more quickly than you would with a traditional savings account.
A confidence boost upon meeting short-term savings goals.
Having a place for windfalls like stimulus checks or extra income from a side hustle.
3. Set Up & Contribute to Your Retirement Accounts
Your retirement account is the honey in your Hive. We can’t say enough about the benefits of investing in a retirement plan. If you care about financial freedom, start planning for your retirement.
The most common plans are IRAs and 401(k)s. IRAs are typically accounts you set up on your own, while 401(k)s are generally set up by your employer — though there are also options for the self-employed. Both types of retirement accounts offer tax breaks. Essentially, when you invest in a retirement account, you can save on taxes and set yourself up for a healthy and happy retirement.
When you invest in a traditional 401(k) supported by your company (or a Solo 401(k) for the self-employed), your retirement contributions are deducted from your paycheck before taxes are calculated. That leaves you with a lower taxable income. In other words, your investment is not taxable until you start withdrawing from your accounts. Similarly, contributions to traditional IRAs and SEP IRAs (for the self-employed) are tax-deductible. However, you’ll pay taxes on the money you take out during retirement.
With a Roth 401(k) or a Roth IRA, on the other hand, you pay income taxes upfront. However, the money you take out during retirement isn’t taxable.
Regardless of the plan you choose, the money you contribute to your IRA and 401(k) accounts will grow over many years through the power of compound interest.
Read More: Everything You Need to Know About 401(k)s
4. Invest in a 529 Plan to Save for College
Sometimes the most worthy investment you can make is in your education — and that applies to anyone in your household. If you plan on going to college or want to start saving for your children’s higher education, a 529 plan allows you to make contributions to a cause you were already planning on supporting — but with the benefit of compounded returns and (in some states) a tax deduction.
A 529 works either as a prepaid tuition plan or an education savings plan, and every U.S. state offers at least one of the two.
A prepaid tuition plan allows you to purchase units or credits at participating colleges and universities at their current price for future attendance by the beneficiary. In short, even if college tuition continues its steep uprise, you or your child could attend at today’s price later on.
An education savings plan doesn’t freeze tuition costs in a time capsule, but it does leave more room for choice. This plan allows you to open an investment account for any higher education expenses, including tuition, fees, and even room and board. These funds can be withdrawn for use at any university or college, and even some non-U.S. institutions.
Higher education calls for significant investments of time, sweat, and tears, as any graduate can attest — but at least you can minimize the financial burden.
Read more: An Introduction to 529 Plans
5. Automate Your Investments
Setting up and managing numerous accounts doesn’t need to be a headache. These days, you can automate just about anything, including your investments. Set up your investment portfolio with a robo-advisor to automate everything — from financial planning to saving for a home down payment and retirement — and track your earnings online. You’ll find yourself building wealth faster than ever before.
Dip your toes in the world of investing with the following tips:
Balance Your Budget: Calculate How Much You Can Comfortably Invest
While the goal of investing is to grow your wealth, it’s important to consider your present needs and desires. We recommend creating different accounts with specific purposes. You may want to open a checking account for day-to-day expenses, a high-yield savings account for your emergency funds, another account to track your investment funds, and a separate retirement portfolio.
Think of your accounts as completely different cups to fill — one that you use every day, another that you can draw upon in a time of need, and others that are invested to fund the future. Once you have your day-to-day expenses covered and an emergency fund, set aside no more than 20% of your after-tax income to invest in your retirement accounts and other low-risk investments.
Consolidate — Choose Your Bank
Using one custodian — that is, one financial institution — for both investments and retirement will help you keep track of your money. If you’ve already contributed to a 401(k) at a previous job and want to switch custodians, you can roll your funds over into an IRA. This not only gathers your money in one place, it also cuts down on paperwork.
Consider Index Funds
Index funds are portfolios of stocks and bonds designed to match the components of a financial market index like the Standard and Poor’s 500. In other words, you get the benefit of making multiple small investments in a variety of ventures without the headache of managing it all. Index funds are managed passively — and inherently diversified. Plus, fees are lower, and investment returns are greater.
Read More: A Beginner’s Guide to Investing in Stocks
6. See if Your Side Hustle is Tax-Deductible
A side hustle is a fantastic way to increase your household revenue — but it often requires a significant investment of both your time and money. Putting it in the simplest of terms, building wealth means that your revenue exceeds your expenses. The more you maximize your revenue and minimize your expenses, the faster you’ll build wealth.
So while you focus on growing your side hustle and increasing your profits, consult with an accountant about which expenses might be tax-deductible. Take into account everything you use for your business, even things you consider to be “personal” rather than “company-exclusive.” Make a list of everything — no matter how small or seemingly irrelevent — like your car’s maintenance costs if you’re doing rideshares, your computer upgrades if you’re freelancing, or even the square footage of your home office if you work from home. You never know what may qualify.
7. Find Community
Whether you start exploring the Hive or reach out to a mentor who has a successful financial history, find a way of talking about money that helps you build a new story — one that’s positive, affirming, and rich in support. Once we start talking about money freely, it’s incredible the things we can learn from one another and the impactful feedback we can gather from those who have come before us — or who are coming up alongside us!
Some of the most relevant and helpful investment hacks will come from your community in the Hive Wealth app or from trusted sources who are at the top of their game. Pretty soon, you’ll be sharing your own savvy financial knowledge with other people looking to grow and thrive.
Let’s get buzzing! Download the app, sign in, and share your thoughts with the Hive.