One of the best investments a person can make if there isn't a whole lot of cash to go around is finding ways to reduce monthly debts and obligations - especially if those debts involve accruing or capitalizing interest.
I'm thinking of investing my money. After I pay my monthly bills and set aside an amount for entertainment and what not, I have enough to put a little more than 10% in my savings. Where do you think could I best invest my money? I'm still single so no family to support.
Look at your monthly obligations and break them into categories:
- Debts that can be paid off [Car loans, student loans, mortgages]
Consider a $10,000 car loan at 8% APY. If you set up a plan to pay it off on five years, and make regular scheduled monthly payments, the total interest paid is $2165.84. Now, lets assume the same scenario, except that the loan is on a payment plan to be paid off in four years. The total interest paid is $1718.20. You save $447.55 by just paying it off one year earlier.
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- Debts that can not be paid off [Phone service, electric, heat/ hot water]
Other ways are developing good habits about home appliance usage. This doesn't mean unplug your coffee machine or other little things. Consider larger, more obvious habits - such as leaving a computer or TV on all day. Some computers consume as much as 1kilowatt hour worth of power - if you look at your electric bill, and evaluate your kilowatt hour usage, you can get an idea how much effect this will have on your bottom line. Since I live in NJ, it costs about 9 cents per kilowatt hour. It would cost roughly $65/mo to keep a 1,000 watt computer running 24/7.
- Recurring habits [Smoking, impulse buying, upgrading]
Another recurring habit is impulse buying - do you find yourself leaving the store with more than what you had planned to buy? Does this happen often? This might be the reason why some of your money is disappearing.
The last and arguably most prominent habit is the need to *upgrade*. If you are someone who likes to stand in line for the latest release of X gadget, spending three times the market value that the item will be marked at a year later, but find yourself strapped for cash for other, more essential things, it might be time to start holding out.