From one frugal person to another, here’s what helped me.
Not going to lie, up until a month ago, I was so uptight with my money that I was afraid to invest any of it.
I’m not just talking about investing in the stock market, I am talking about investing in my 401K, any type of Roth IRA, mutual funds, even high-yield savings accounts.
For me, the fear was not being able to have instant access to my money. I am one who has always prioritized the worst-case scenario in my mind, so if I needed something, I wanted to be sure that it was readily available.
For years, I let my current back get by on paying me 0.001% interest. If I had $30,000 in the bank, I was making around $.38 per quarter.
After some research, I finally realized that I was losing money. With the cost of inflation, I was actually losing more money on a yearly basis than I was earning in interest. As someone who was and is uptight with their money, this is ultimately what triggered me to start investing. If my “safe plan” was actually doing more harm than good, why would I continue to do it?
Sure, I have put a few hundred dollars into the stock market here and there, but I would never let it sit for more than two weeks before pulling it out.
I always felt as though I had chosen the wrong stock at the wrong time. I would put money into something I thought was going to do well, and then over the course of a few weeks, the value of the stock would decrease and I would panic. Basically, I would obsessively check my stock portfolio number times a day and finally, it would just get to the point of being too much to handle.
But recently, I have found a few strategies that have helped me overcome my fear of investing. Now, I am finally letting my money work for me instead of me working for my money.
I know there are others out there like me who are afraid of investing and losing money, so let me share with you some of the tips that have helped me, probably the most frugal person you will meet, overcome my fear of investing.
I did a lot of research into this one, and finally, after a few weeks of pondering the decision, I realized that a high-yield savings account would be beneficial to look in to. They have quick processing times, they are FDIC insured, and they can pay out a pretty sizeable interest rate.
In a matter of 10 minutes, I was able to open high-yield online savings account through Ally Bank. Right now with the economy suffering a little, interest rates are only around 1.1% annually, but they can get as high as 2.5%.
What this means is that if you have $1,000 in this account, it can earn you $11 at a 1.1% interest rate to $25 at a 2.5% interest rate. It may not seem like a lot, but it’s better than losing money.
For me, this was the first step I took to overcome my fear of investing. Honestly, it’s a good step that helped me to realize that it’s incredibly beneficial to invest my money instead of just letting it sit.
This is something that’s new to me as well, but after reading Dave Ramsey’s Millionaire Makeover, I realized that there are actually a lot of safe stocks to look at.
So, what are some of these stocks?
The first is the S&P 500. Over the last 20 years, the S&P 500 has a return rate of 9.8% yearly. That means every year, the value of the stock will increase by an average of 9.8%.
Let’s use the example of $1,000 again. If you have $1,000 in the S&P 500, after a year, you could expect that amount to grow to $1,098. Basically, it’s just $98 free to let your money sit there.
If you don’t know what the S&P 500 is, it’s an index fund that measures 500 stocks in America. These stocks include Amazon, Apple, Tesla, Microsoft, basically all of the top-performing stocks.
Are there going to be years where the rate of return is less than 9.8%? Yes, but even with the pandemic this year, it’s still up 8.5%.
There are also index funds such as XLK, which is all of the top-performing tech stocks from the S&P 500. Then, there’s Amazon that just seems to continue to grow and grow and grow.
Before you do anything, do your research as to what makes you comfortable. I did my research, and in the process, I found something that was going to help me overcome my fear of investing.
I didn’t start doing this until I was in my third year of working at a corporate job and can say that I probably missed out on thousands of dollars of pre-tax money as well as employer contributions.
My old employer would match 50% of what I contributed up to 6%. That means that I had to put in 6% of my paycheck into my 401K and they would match 3%. These were pre-tax dollars, and they wouldn’t be taxed as long as I waited to start withdrawing them once I reached the age of retirement.
Instead, I put all of that money into a savings account that was making me 0.001% return, so actually, it was losing me money. In looking back, it wasn’t a wise decision.
If you are scared of investing your money into the stock market or opening up an online savings account, let somebody else manage your money for you by opening a 401K. Most employers now match a certain percent as well, so that’s basically free money that you are missing out on if you don’t start saving for retirement.
I could go on and on about other things you should do with your money such as investing in real estate or a Roth IRA, but I haven’t done any of those things yet, so it wouldn’t really be fair.
I am still in the early stages of overcoming my fear of investing, but these are the 3 steps that I have taken so far that have really seemed to help me loosen up a little bit and actually let my money work for me.
Trust me, as a frugal and uptight person, I get how scary it can be to move your money anywhere where you don’t have immediate access to it. But with these options, you can have immediate access if an emergency comes up. Obviously it wouldn’t be wise, but nobody ever knows when they may need it.
In the meantime, let your money grow for you. Do your research, start small, but let your money work for you instead of always having to work for your money.