8 Ways To Free Up Cash To Start Investing - The Humble Penny (2024)

8 Ways To Free Up Cash To Start Investing

The number one reason why most people don’t invest is that they do not have enough money to invest.

Six figures or not, the same problem persists.

This is usually because some people are subscribed to a consumption lifestyle that isn’t making a provision for tomorrow.

Becoming an investor is a choice and is a way of living.

Most employees and self-employed people typically don’t view themselves as investors whereas business owners are more likely to be investors.

This is because they understand the idea of capital gains from growing their businesses and creating equity (future wealth).

Another reason is that employees are typically consumers whereas business owners and/or investors are producers and creators of value.

Investing is about sowing seeds today that might grow into large trees sometime in the future.

These then bear lots of fruit time after time and creating wealth for the sower.

Freeing up cash to invest in your finances is proof that you've understood this timeless principle.

Those who sow, reap. It's really that simple.

You get to choose which side you want to be on.

If you've been struggling with how to find the spare cash to invest, below are some thoughts.

As ever, reading these ideas is one thing. Putting them into action is quite another.

I'd highly recommend getting your partner (if any) involved in all this. All money battles are won with unity in hand.

Why not pick one or two as an experiment?

1. Fat Finding

This is all about doing a deep dive into your finances and understanding what you spend money on.

Get online and download 3 months of your bank statements.

Grab a pen and begin to categorise your expenses.

We all have fixed recurring costs e.g. mortgage payments, gym memberships, utility bills, phone bills etc.

Although these amounts leave our accounts monthly and typically for the same amount.

This doesn’t mean they cannot be challenged for some savings.

Investing requires making sacrifices and deferring gratification.

I, for example, cancelled my gym membership of £80 a month. instead now aim for 15,000 walking steps/day and maybe a 5k run a week.

Another thing you could do is see if you are out of contract for your utility bills and negotiate better terms.

I do this every year without fail and diarise my future negotiation dates.

Easily, one could find investible cash of £150/month just from the above exercise.

Then move onto the variable costse.g. restaurant bills, takeaways, coffees, holidays, nights outs etc.

This is where a lot of fat can be found because a lot of these expenses are there to supposedly make us feel good.

A daily Caramel Macchiato from Starbucks costs £3.55 for a Grande.

Imagine giving up on 3 days of coffee/week, and putting this amount (~£42.60/month) towards your monthly investing pot.

The £150 plus £42.60 plus say another £50 for example saved from other areas easily gets us near say £250 a month of investible cash.

£250/month invested and compounding at a rate of 7% per year over the next 15 years, for example, gives a £77,776 pot.

This compares to £45,000 if held only in cash or zero if you don't bother at all.

2. No Expense Days

Your payday is probably the most dangerous day of the month.

A survey of working Brits found that 35% typically blow most of their wages within one week of being paid.

1 in 10 people goes on a spending spree after receiving their monthly salary, at an average spend of £391.

A total of 42% find it tough to make their money last all month (with some relying on credit cards to survive).

Some 37% say attempts at sticking to a budget “never work out”.

Women typically splash out on clothes whilst men indulge in a new “boy’s toy”.

None of this is helped by the instant world we now live in.

Spending on payday must be avoided like a plague.

I go as far as earmarking Mondays (most depressing day/week) and Saturdays (most desired day/week) as no spending days.

3. Automate All Savings

I don’t trust myself to pay myself each month before paying for anything else.

Systems are way faster and reliable than we are.

I automate all savings i.e. standing orders thatmove money the same days I get paid to accounts I cannot easily access through my phone in an instant.

Once you have consistently paid yourself, not only do your savings actually start to noticeably grow but more importantly, you must survive on what is left.

It’s non-negotiable.

Apps such as Chip and Plum bring intelligence to saving and help you do it automatically.

4. Use Designated Accounts

Using bank accounts for various purposes is a good way to get organised.

It also helps to reveal cash that possibly has no home and needs to be put to work.

Such accounts could include holidays, petty cash expenses, emergency funds, savings, food shopping etc.

By automating as suggested above, you don’t have to repeat this each month.

Investors don't hold cash typically, although there are exceptions.

Where you are holding short-term and medium-term cash, it helps to ensure you're earning some interest.

Some accounts pay you to lock away your money for say 3 months to one year. Only do this for cash you don’t need immediately.

I personally invest all cash we won’t touch for 3 months into easy access index funds.

5. Budget Everything

Having a budget is one thing, using it to control your financial life is quite another.

The Free Practical Money course isideal if you need practical guidance on all things budgeting and more.

A budget is a compass and should be viewed as a living document.

By that I mean it should not be an exercise that gets done and then put to the side.

A budget is most effective when you have a date in your diary for comparing ‘Actuals vs Budget’.

I.e. comparing your actual spend in a month to what you thought you were going to spend.

In this way, it acts as a deterrent to your spending in the next month and shows you exactly where you have over/underspent.

I use designated accounts to ensure we are sticking to the budget.

E.g. if the shopping bill is £50 a week, that is what goes into the shopping account.

If we get to the shop and our shopping exceeds £50, stuff has to be removed to meet the budget.

Budgeting helps you create a positive cash position in your world, which can then be sown as an investment.

Read: How To Create A Budget That Works For You

6. Track All Expenses

Where you can avoid using cash just so that you have a trail of your expenses.

Check out apps such as OnTrees and Money DashBoard.

They help you pull together all your expenses by category each month so that you know exactly what you are spending on.

Tracking expenses are extremely important for an investor.

The costs of investing should be kept as low as possible to ensure your money is working harder for you.

Read: Understanding Investment Fees And Why It Matters

7. Pay Off Costly Debt First

It makes no sense to invest your cash where you have high-interest debt that you are obligated to pay.

You need to focus and clear these first rather than hope for returns that might never show up.

This point is here to remind you that you are doing the right thing and not to rush into investing.

Note though that you can have a mortgage and be an investor too.

This is provided you’re able to meet your mortgage payments monthly according to your budget.

8. Start A Side Hustle

If you don’t have a side hustle already, then I would suggest you start one asap.

Ideally online because of the power and reach of the internet.

Starting a side hustle to raise money, which you then specifically plow into investing is a smart move.

A friend of mine built up a £1m portfolio over 10 years through a side hustle.

Now he receives a dividend of $50,000 per annum from his pot. With that kind of set up, one starts to have options!

If you think about it, this is exactly what the rich do.

[redbar]They create businesses as an asset class and then invest their profits into other assets to diversify and make more money.[/redbar]

A side hustle is necessary not only because it gives you this route to future wealth if you’re disciplined.

It also gets you off social media and gives you a defined purpose and something to be excited about.

Having the possibility of the link between effort and reward is enough reason to get started.

Read85 Ways To Make Extra Money for some side hustle ideas.

To conclude,

By taking these small steps, you will already be miles ahead of millions of people. Although it isn't a race, doing the above gives you a clear advantage.

It's a step forward in living your financial life by design.

And this is just the beginning of you being in control of your money and on a guaranteed path to becoming a good investor.

Related:

• Passive Investing And Why You Should Care
• 7 Habits For Highly Successful Side Hustling
• Investing Risks You Should Be Aware Of
• 7 Guaranteed Ways To Make An Extra £1,000 A Month

What are some other challenges you're having with starting to invest? Please comment below.

Do please share this post if you found it useful, and remember, in all things be thankful and Seek Joy.