1. Spend less than you earn<\/h2>\n
It may sound obvious, but many of us struggle to keep our spending within budget \u2014 especially when we don\u2019t make an effort to save first.<\/p>\n
Spending less than you earn is the key to having disposable income: that leftover money in your bank after taxes, bills and general living expenses are taken care of. It\u2019s the income that can contribute to your investments and build wealth.<\/strong><\/p>\n But in practice, it can be difficult to spend less than you earn. That\u2019s partially due to Parkinson\u2019s Law: work expands to fill the time allotted to it. The same goes for money, since you\u2019ll always find something else to spend it on.<\/p>\n One of the best ways to tackle this issue is to <\/span>pay yourself first<\/b>: the minute you receive your salary or income, take out 10% and send it to your savings accounts. If 10% is too high, start with 1% — and then work your way up. <\/span><\/p>\n Once you\u2019ve taken out your savings, you\u2019re allowed to spend whatever\u2019s left, as you\u2019re already done with saving!<\/span><\/p>\n That\u2019s the trick to spending less than you earn.<\/p>\n Most investments won\u2019t just blow up overnight.<\/p>\n Asset classes such as the stock market or P2P investing<\/a> rely on compounding interest<\/a> to deliver higher returns. It means that the majority of your returns will come later on in the investment period, and patience is therefore key.<\/p>\n Some investors believe in \u2018timing the market\u2019. This refers to the studying of market cycles and investing based on historical data, usually when the markets are volatile.<\/p>\n But trying to \u2018time the market\u2019 is a risky strategy (like gambling) \u2014 especially considering that 95% of investment managers don\u2019t beat the market<\/a>.<\/p>\n Imagine investing \u20ac200 monthly at 6% annual interest (compounded) for 20 years. Your investment would total over \u20ac88,000 at the end of the investment period, with over \u20ac40,000 accumulated in interest.<\/p>\n Now imagine investing the same amount for 40 years.<\/p>\n Sure, that can feel like forever<\/em>\u2026\u00a0 but the total value of your investment now rises to over \u20ac370,000<\/strong>, with over \u20ac20,000 in interest in the final year alone.<\/p>\n Being patient helps you earn an additional \u20ac283,000!<\/p>\n That\u2019s why they say, \u201ctime IN the market beats timing OF the market\u201d<\/em>.<\/p>\n So be patient with your investments and allow them the time to mature.<\/p>\n Diversifying means splitting up your investments into different types of assets in order to reduce risk<\/a>. If one investment fails, the others should still offer a healthy return. Professional investors use this strategy to protect their overall wealth when there\u2019s a downturn.<\/p>\n But how do you diversify as a new investor?<\/p>\n First, look for assets that don\u2019t overlap. For example, those in different industries or markets. ETFs are a good option for those looking to invest in an automatically managed diversified portfolio<\/a>. This helps protect your investments from unsystematic market movements.<\/p>\n Second, choose different classes of asset. For example, it\u2019s worthwhile to hold some gold, invest in P2P lending<\/a> and invest in property<\/a> (through REITs). This way, you can also avoid the systematic market crashes that sometimes occur in the stock market<\/a>.<\/p>\n Let\u2019s say you have \u20ac1000 to invest<\/a> every month.<\/p>\n Here is one way to split up your investments:<\/p>\n Diversifying means that you\u2019ll lower the value of each individual asset, but that overall you stand the chance of making higher returns. Consider sticking to one investment route first, and then adding a second after 6 or 12 months.<\/p>\n (Those who diversify with Swaper can expect to make 14% annual returns, which is approximately double the rate at what typical stock market returns provide).<\/p>\n Research shows that emotions (and short-term thinking) cost investors quite a lot.<\/p>\n In fact, negative emotions correlate<\/a> with negative investment returns across the board. And no wonder: if you invest your savings and then see the market tank, it\u2019s likely you\u2019ll be tempted to sell your investments.<\/p>\n That\u2019s why we\u2019re big fans of \u201cdollar cost averaging\u201d: investing a small amount of money every month, instead of doing it all in one go. By committing to invest the same amount every month, you\u2019re less likely to feel the bumps and essentially turn investing into a habit.<\/p>\n Remember those savings we mention in rule #1?<\/p>\n The minute you get your income<\/a>, setting aside 10% and putting it into investments is one of the best ways to ensure you spend less than you earn while also getting in the habit of investing regularly<\/a>.<\/p>\n Think about a 2% fee? Sounds like nothing, right?\u00a0<\/span><\/p>\n Why even waste your time worrying about a <\/span>measly two percent<\/span><\/i>?<\/span><\/p>\n Fees are one of those things that seem small, but will accumulate over time.\u00a0<\/span><\/p>\n Let\u2019s see how it works:<\/span><\/p>\n If you invest \u20ac1,000 for 20 years with a 10% annual return, you\u2019ll get close to \u20ac7,000 (with no additional investments). <\/span>But if you\u2019re paying 2% in fees, that 10% annual return quickly drops to only 8% (10% minus your 2% = 8%). <\/span>So, that \u20ac7,000 you were expecting after 20 years? It\u2019s now less than \u20ac5,000.<\/strong><\/span><\/p>\n That <\/span>measly two percent <\/span><\/i>will end up costing you more than \u20ac2,000 over a 20 year period.<\/span><\/p>\n Fees eat into your overall investments, with no real upside.\u00a0<\/span><\/p>\n The final investing rules most investors live by?<\/p>\n Never pay more than 1% in fees.<\/b><\/p>\n At Swaper, we don\u2019t believe in charging any fees which also means that selling your loans on the secondary market is free.<\/span><\/p>\n These are 5 investing rules that every sound investor follows.<\/p>\n They\u2019re not sexy, but that\u2019s what investing should be: boring, consistent and delivering results. And then when you need the money for your child\u2019s education, travel or retirement<\/a>, it\u2019ll be there waiting for you. That\u2019s what investing is really for.<\/p>\n Looking for an investment class that aligns with those investing rules?<\/p>\n Try P2P investing<\/a>. You can set up a new account in minutes.<\/p>\n2. Be patient<\/h2>\n
![\"Compound](\"https:\/\/swaper.com\/blog\/wp-content\/uploads\/compound-interest-rate-300x157.jpg\")
<\/p>\n3. Don\u2019t put all your eggs in one basket<\/h2>\n
![\"Investment](\"https:\/\/swaper.com\/blog\/wp-content\/uploads\/investing-rules-to-live-by-300x93.jpg\")
<\/p>\n4. Invest regularly, and long-term<\/h2>\n
5. Keep fees low<\/h2>\n
Conclusion<\/h2>\n