We must recognize that we all have two main assets that we should never waste: time and money. Many times, we say that we have the time to do something but not the money; or vice versa, we have the time to do something, but we don’t have the financial resources to do it. How to achieve to have money, then?
First, we must review what type of relationship we have with our finances. For example, are you one of the people who live by the day and as soon as the money arrives it goes away? Or you’re not sure how much money comes in, but you’re sure that at the end of the month you have nothing left.
Suppose you’re like most people and that you have a more or less fixed monthly income. In these cases, my advice to save is to determine a fixed amount that will be your savings, you put it away as if it didn’t exist and consider that the remaining money is what you have to spend. This method is called “Save First”. This way you will avoid running out of money for your savings at the end of the month.
After a while doing this small but great work you’ll have a saved amount of money and you will be able to decide what to do with it. If you already have it, before investing, think about when you want the money (term), how much risk you can accept (risk-return) and what type of investment tools you’re interested in.
Regarding the term, consider that if you had an objective that motivated you to save (purchase some good, a trip, a party) after a while you will have the resources to fulfill it. If your goal is longer term and you want to continue saving you can approach financial institutions to analyze the proposals that offer higher returns.
As for the risk-return, remember that there is a relationship between the yield which is the interest rate you receive for your money, and the risk that comes with that alternative. In simple words, if you put your money in a “very safe” alternative, the performance you will have will be small. If you want to have a greater performance you will have to be willing to accept more risk, that is, to have “less secure” investments.
With regard to financial investment tools, we can classify them into two large groups: fixed income, which refers to public or private debt instruments that may be: installment deposits, mortgage bills or similar; and variable income, for example: stocks, company bonds, investment funds, national or foreign stock certificates (ADRs) and the like.
We can also have investments that are not in financial assets, these are for example real estate. We can even combine real estate with financial instruments in a figure called “crowdfunding” in which as an investor you participate with money in a real estate investment project and in the end you get a return for this participation.
As you may realize, the main challenge to talk about savings or investment is to organize yourself to have the necessary resources to start, then you must know the term of the investment you want to make (short, medium or long term), the type of investor that you are (a risk-taker who accepts “a lot of risk” or averse to risk who prefers “little risk”) and finally know the instruments that most closely match your objectives.
Let’s start then by the simplest to later go to see these issues in depth. It’s worth knowing yourself and deciding how, when and why to save and invest.
Cecilia Fernández is an economist from ITAM, with a master’s degree in Administration and a specialty in General Management from the same institution. She is studying the Doctorate in Education program at the University of San Luis Potosí. She worked for 10 years in the Corporate Financing area of Casa de Bolsa Bancomer, and works as an external advisor in the areas of Asset Financing and Securitization. Cecilia has been teaching for more than 20 years, currently teaching at the Pan-American University in economics and finance and at the Universidad Anáhuac in the online master’s degree programs.