Raising money for investments

Reading Time: 5 minutes

Many people may be struggling to invest not because they do not want to but because they fail to raise the money to invest. Maybe you are just coming from the university with no money or you were raised in a poor family. Investing may be a challenge if you do not have enough control over your finances. Despite all that, raising money for investments is easier than what you may think if you have the drive to invest.

I want to emphasise the most important thing you need to have before you consider about investing – the motivation to make it work. If you do not have the self-drive to make it work, it may be better not to start. Investing is not a game for the faint-hearted, you may lose more money.

With all that being said, we are going to discuss 7 ways of raising money for investments. These are:

1. Cut and Replace method,
2. Save and Invest strategy,
3. Debit orders option,
4. Extra job route,
5. Using debt,
6. Team work,
7. Disposing liabilities.

Cut and Replace method

On this method you just need to be good on your budgeting skills. Cut the expenses that are in the luxury (wants) bucket. You may need to see our post about thinking beyond income and expenses. Reduce the amount of money you allocate on luxury or things you can live without.

Immediately after cutting from the expenses section, allocate that money to the investment bucket.

Warning: Avoid the trap of adding another expense after cutting another. You need to keep your budget balanced all the time.

Example:

Suppose that you are buying clothes worth R 5 000 every month and you decide to cut this allocation to R 3 000. Immediately, you can open a 32 Days Investment account with any bank and invest that R 2 000 from the clothing budget.

Note that your budget is still balanced. That is, you managed to create a way to invest without much sacrifice.

Save and Invest method

It is true that other forms of investments require you to have large sums of money. Let us suppose you want to invest in property, you may need a lot of money to do so. You can save your money in the bank until you have accumulated enough to start investing.

You can put your money in a stable savings account that earns interest so that you can keep up with inflation.

Warning: Do not use the savings for something else. Be strict with your goals.

Debit Order option

The main reason why you may not have any money left to invest on your budget is lack of discipline with your budget. Let us pause a bit, why are you comfortable with the government taxing you but you do not reserve money for your investments?

Use the same strategy of taxes for your benefit!

Allocate a fixed percentage of your income towards investing. Look for an investment company that can deduct a debit order from your bank every month and invest on your behalf. Spend what is left after the debit orders.

Please note that with investment management companies like Allan Gray or Old Mutual you can start investing in unit trusts with as little as R 500. They will deduct a debit order every month and invest for you while you are concentrating on your day to day business.

Warning: Please do not reverse your debit orders, otherwise it will defeat the purpose.

Getting a part time job

If you have explored all the other avenues and you cannot have a budget for investments, then you may need to get a part time job. You can tutor the subjects you are good at or do something that you can do with little effort to get an extra income.

Moreover, use that extra income to invest. You can actually use a different bank account for the income you get from your part time job. This is important so that you do not mix your income with your main account. Your income from the part-time job should address a specific goal of investing and nothing else!

Warning: Avoid the trap of increasing your expenses or counting your extra job salary as a back up income.

Using debt for investing

Many great investors use debt to invest. They call it “investing with other people’s money”. Debt can make it possible to invest in assets that require a lot of money like Real Estate.

Take note that debt for investments like this may not be easily accessible. You need a good credit score to use debt. If your credit score is bad, your interest rate will be high and you will likely to lose on the investment if the income from the investment is less than the interest you are paying.

Additionally, if your investment flops, you will still be liable to pay interest on debt. This may worsen your financial position.

Warning: Do not take debt for investing unless your expected income from the investment exceeds the interest payments.

Team work

They do say, the friends you make at the college are your lifetime friends. Take advantage of such friendships. Imagine what 5 friends can do if they pool their money together. Investing as a team will allow you to have access to investments or projects that require a lot of money.

Raising money for investments as a team is one of the most efficient ways to grow your money. Likewise, you can also share the risk of investing which is a great solution if you are not willing to take a lot of risk alone.

Warning: Make sure you separate friendship and business. Try to document everything and find someone to manage your money.

Getting rid of fake assets

Fake assets are those that hide as assets while in actual fact they are liabilities. Most of the gadgets we use fall into this category. It is easy to fall into the trap of emotional buying.

It may save you a lot of money if you buy a car that suits your needs not just your luxury taste. Instead of buying a new BMW car, you can buy a cheaper car and invest the extra money. Likewise, it can save you a lot of money if you buy a cheap Android phone instead of the latest iPhone on the market.

If you have already acquired these fake assets, you can sell them and invest the money. Another idea is to reduce your future budget on fake assets and invest your money. Instead of changing your car in 2 years time, you may try to buy another one in 7 years time so that you will give yourself time to focus on investing.

Warning: Do not be a victim of peer pressure. Just because your friend drives a BMW does not mean it is the right time for you to drive one. You can still buy yourself one when your investments are earning enough to buy it for you.

In conclusion, there are several ways of raising money for investments. You may need to work on building your habit of saving and investing. Investing is for everyone, you only need to have the drive to do it. It may take time if you were raised in a poor family but this can never be an excuse for remaining poor. Take responsibility for your financial decisions!