It’s not too late to start if your 2025 New Year resolutions didn’t include better management of your finances and wealth generation.
While it is important to improve your relationship with people, manage time better, and become more healthy (among other popular New Year resolutions), making conscious choices about how to invest your money (and make it work for you even while asleep) is also essential.
In what follows, we will consider certain resolutions you can make to set yourself up for wealth-building in 2025.
1.Put your finances in order
You can only build wealth through investing when your finances are set in order. If you are still spending more than you earn and racking up debt, it will be difficult (almost impossible) to take the path towards financial freedom.
So, before you even consider how to start investing money in 2025, resolve to do three things:
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Create a budget:
A popular budget system is the 50/30/20 rule where you spend 50% of your monthly income on your needs (rent or mortgage, clothing, food), 30% on your wants (data subscriptions, eating out, travel), and save the remaining 20%.
If your current spending habits don’t fit this rule, you will need to adjust them by removing some unnecessary expenses and scaling down on others.
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Stick to your budget:
Apart from developing the discipline to avoid overspending, you can also help yourself by saving before you spend (as Warren Buffett advises). If you save and invest the 20% first, it makes it easier for you to stick to your budget.
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Have an emergency fund:
The first thing you should do with your savings is to build an emergency fund. You fall back on this fund whenever emergencies (unbudgeted travel and medical expenses, for example) occur.
Having an emergency fund will save you from racking up debt or fire-selling your investments for cheap to raise money for emergencies.
2.How to invest: Key principles to abide by
After you have built an emergency fund, the next step is exploring investment opportunities that will help you build wealth. Some of the most credible options include stocks, bonds, mutual funds, ETFs, Real Estate Investment Trusts (REITs), gold, and Bitcoin.
But how should you go about investing in these?
Below are key principles that successful investors (Warren Buffett, Ray Dalio, John Bogle, etc.) across the decades swear by that you must resolve to abide by:
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Invest for the long-term:
The longer you stay in the market, the higher the probability of making money and the lower the probability of losing it, and vice versa. Spending time in the market helps you to take advantage of compound interest, the eighth wonder of the world, according to Albert Einstein.
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Diversify your portfolio:
Some assets (stocks, Bitcoin) provide high returns for high risk while some provide low returns for low risk (bonds). Similarly, while some do well in good times (stocks), some provide protection in bad times (gold, bond)
Combining these different types of assets instead of concentrating on only one will provide you with a diversified portfolio that maximizes returns and minimizes risk.
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Choose passive investment:
As an individual investor who doesn’t have the time or skills to select stocks, you are better off with a fund.
However, over the years, mutual funds (actively managed funds) have found it difficult to provide better returns than the market despite the high fees they charge. On the other hand, passively managed funds continue to track the performance of the market while charging very low fees.
This is why people like Buffett and Bogle advise that individual investors should stick to passively managed funds.
ETFs are more appropriate than index funds because they are traded on stock exchanges just like stocks, making them more liquid. They also offer more diversification options and are more transparent.
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Use a robo-advisor:
The need for diversification means that one ETF is not enough. You must know how to combine multiple ETFs in a way that aligns with your risk profile, investment goals, and time horizon.
Most individual investors don’t have the time or skill to find the right ETFs or the right formula for allocating funds amongst them.
Using a robo-advisor can help with this. These are low-cost digital advisors that will take information about your risk profile, investment goals, and time horizon and create an efficient and personalized portfolio for you.
Sarwa Invest is a robo-advisory product offered by Sarwa for UAE residents that makes creating your investment plan seamless for a low cost.
Sarwa uses artificial intelligence and modern portfolio management theory to create efficient, diversified, and personalized portfolios that will help you achieve your investment goals. They also allow you to automate your investments so you can stick to your budget.
In addition, Sarwa’s Investing for Beginners guide provides you with detailed information on how you can get your wealth-building journey on track.
You can begin your 2025 on the right foot by starting your investment journey with Sarwa.