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3 Ways to Find Money in Your Budget to Invest

Mon, 22 May 2017

Christine Benz suggests setting a savings target, adjusting that target as your salary increases, and automating your contributions.

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Video Transcript

Christine Benz: Hi, I'm Christine Benz for Morningstar.com.

Ultimately, your own contribution to your investments will have a bigger impact on whether you reach your financial goals than your investment selections will. But how do you find money in your budget to invest? That's more art than science, but I have a few tips.

First and foremost, too many investors do budgeting backward: They look over how they're spending and see if they have any money to invest. I think it's a better idea to set a savings target and see how you can adjust your budget to accommodate it.

Second, don't assume that you don't need a budget once you're earning a higher salary. The more your earn, the more you should be able to save--not just in dollar terms, but as a percentage of income, too. High-income earners should be targeting a 20% savings rate, at a minimum.

Finally, one of the best ways to stay on track with a savings plan is to automate your contributions. That's what you do with your 401(k) plan, but you can do the same with your IRA and taxable accounts, too. That helps ensure discipline in your investment program, and keeps you investing in good markets and bad. Tell your investment provider you'd like to use an automatic investing plan.

Thanks for watching. I'm Christine Benz for Morningstar.com

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