This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Becoming a millionaire may seem like a fantasy when you're working hard to cover the bills. But the good news is you don't need a huge paycheck or a winning lottery ticket to amass a seven-figure nest egg by the time you reach retirement age.

In fact, by following just four simple steps, you should be able to save at least $1 million to help support you in your later years. Here's what those steps are. 

1. Start investing early

It's much easier to save $1 million if compound growth helps make it happen. When you begin investing, the money you've contributed to your account starts to produce returns. Those returns can be reinvested. When that happens, your account balance grows without any further intervention from you.

The sooner you begin investing, the more your returns can multiply over time and grow your balance. Say, for example, you invest $100 and earn a 10% return. By the end of the year, you'd have made $10 and would have $110. The subsequent year, if you earned the same 10% return, you'd make an $11 profit instead of a $10 one because your returns would be earning money for you as well. 

Compound growth is powerful. If you begin investing at age 20 and benefit from 45 years of compounding, you could end up with a $1 million nest egg by contributing just $115.91 per month to your account (if you earned an average 10% annual return). But if you waited until age 40 and had just 25 years of growth, you would have to contribute $847.33 per month to amass $1 million. 

Obviously, you can't go back in time and begin investing at 20 if you're already past that age. But if you want $1 million saved, start working on that goal the minute you can. 

2. Calculate how much to invest each month

Breaking big goals down into small ones is the easiest way to accomplish them. So start from the premise that you want $1 million saved by a specific age, such as 65. Then break this big goal down by determining how much to invest each month to reach your target.

Investor.gov has a savings goal calculator that can help you calculate the requisite monthly contributions based on projected returns and the date you want your $1 million to be available. 

3. Automate retirement account contributions

If you want to be sure you reach your savings goal, you must be consistent with investing your target amount. The best way to do that is to make the process automatic so you don't have to manually make the decision to invest each month.

If you arrange to have contributions taken directly from your paycheck or to transfer the required amount of money directly from your bank to your brokerage firm each day you get paid, this maximizes the chances that you'll stick with your plan to become a millionaire retiree. You'll be far less likely to skip a month of saving if it happens without your intervention. 

4. Build a diversified portfolio

Finally, you'll want to make sure you're invested in a good mix of different assets that limit your risk while still giving you the potential to earn reasonable returns. If you're good at selecting stocks, you can build a diversified portfolio yourself by spreading your money around and buying shares of companies across many industries.

If you don't know how to choose a good mix of varying investments, diversification is easier with exchange traded funds (ETFs). You can select an ETF that gives you exposure to 500 of the largest US companies across all different fields by buying an S&P 500 index fund. Or you can buy several ETFs, including one investing in small companies, another in large ones, a third in bond funds, a fourth in real estate, and a fifth in emerging markets. 

By following these four steps, you can make certain you're investing enough and earning generous enough returns that becoming a millionaire retiree is easily within reach.

 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Why this ASX dividend share is a retiree's dream
• The pros and cons of buying Qantas shares this month
• How many shares in this high-dividend toll road stock do you need for a $10,000 income stream?
• Which ASX 200 tech stock has Bell Potter just downgraded?
• Stop 'saving', start investing! How to target a $1 million ASX share portfolio

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The stock market could very well crash in the coming months. This might sound like bad news if you have a lot of your hard-earned money invested and you're afraid to see your portfolio balance fall. 

But a market crash isn't something to fear. In fact, there are three big reasons you shouldn't be concerned as long as you've got investments you believe in.

1. Market crashes are inevitable

Worrying about a stock market crash is like worrying about a rainstorm. It's not worth it because a crash is as inevitable as a rainy day. Crashes have always been part of the natural economic cycle and if you are prepared, you can easily weather the storm.

But just because you don't need to worry about rain doesn't mean you shouldn't have an umbrella. In this case, your umbrella is a portfolio strong enough to make it through unscathed. Doing this involves smart strategies including investing for the long term and building a portfolio made up of a diverse mix of assets. 

2. Recoveries always follow crashes

A market crash can send your investments plummeting, but just as there have always been crashes, recoveries have always inevitably followed like a rainbow after a storm.

The recovery may take months, or even years. But over time, the market has consistently gone up and never experienced a downturn that didn't eventually reverse itself. 

If you have investments you believe in, just hold them through the crash and wait for the price of your shares to bounce back. Any losses will be temporary and only on paper, and you should end up earning positive returns over the long haul if you've invested wisely.  

3. Crashes present buying opportunities

Lasty, rather than worrying about a market crash, you should view it as an opportunity. Contrary to what your instincts may tell you, it's a good idea to invest more when a crash has occurred. You can buy shares of good companies when they are on sale and benefit from the discount. 

You don't necessarily want to try to time the market to buy at rock-bottom prices since you can't always tell exactly when the crash will end and recovery will begin. So if you consistently buy stock as prices fall, it's inevitable that you'll buy some shares at an opportune time and see more profit because of it. 

What should you do instead of worrying?

If you want to make it through a crash unscathed, there are a few key things you need to do.

First and foremost, don't invest in anything that you wouldn't be prepared to hold through a downturn. If you're trying to make a quick buck with a short-term investment and you don't trust that the company can survive tough economic times, you could suffer permanent losses if you have bad timing and buy before a crash occurs.

Second, aim to have some cash available to invest when a crash happens so you have the opportunity to take advantage of discounts in companies you believe in. 

And third, never panic-sell because doing so just locks in losses. Avoid checking your portfolio obsessively when times are tough and have enough confidence in your investment thesis to sit back and wait for the turnaround to come and your investments to rebound. 

If you do these three things, a market crash shouldn't be cause for any concern. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Why this ASX dividend share is a retiree's dream
• The pros and cons of buying Qantas shares this month
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• Stop 'saving', start investing! How to target a $1 million ASX share portfolio

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Figuring out how to invest your money can feel daunting when there are so many different types of assets to buy. And if you aren't sure how to research individual companies, you may feel like getting your money into the stock market is simply too risky. 

But there's also a huge cost to not buying equities, as it can be difficult to earn the returns you need to build wealth if you don't put your money into the market. The good news is that you can become a wealthy investor even without a lot of specialized knowledge. That's because there's a simple option out there that almost everyone can figure out how to invest in. 

How to become a successful investor without picking stocks 

If you don't want to research individual stocks or spend time studying companies, the simplest, easiest way to still grow your wealth through investing is to put your money into exchange-traded funds (ETFs).

ETFs trade like stocks. But when you buy an ETF, you aren't gaining an ownership interest in a single company. Instead, the fund you pick will have a specific objective and will spread your money around many different assets designed to achieve that goal. 

For example, there are ETFs that track the S&P 500 Index (SP: .INX). That's a financial index created by Standard & Poor's to measure the performance of around 500 of the largest US companies. When you buy an S&P ETF, the money you've invested buys a very small ownership stake of all 500 of those companies. 

There are also hundreds of other ETFs, including those tracking other financial indexes or that are designed to provide exposure to specific industries. This includes ETFs that invest your money in small companies, midsized companies, emerging markets, real estate, bonds, cryptocurrency-related businesses, the cannabis industry, healthcare, and just about anything else you can imagine. 

The great thing about ETFs is that it's really easy to find ones that match your investing goals and interests. If you want to be pretty conservative in your investing, for example, you could build a very low-risk portfolio by dividing your money between an S&P 500 fund and a bond fund.

But if you have an interest in specific industries you think will outperform the market as a whole, you can invest in them without having to do a ton of research. If you think the cannabis market is poised to explode, you can buy a marijuana ETF and instantly be invested in producers, distributors, and researchers working within the field without having to wade through tons of details about individual cannabis businesses. 

Because ETFs spread your money around, it's virtually always less risky to buy them than it is to invest in stocks. You can achieve diversification with a lot less effort. And most brokerage firms have ETF screeners that enable even novice investors to pick the appropriate funds in a matter of minutes by searching based on fund goals, fees, and past performance. 

Now, because you are buying an interest in so many companies with most ETFs, it's unlikely you'll substantially outperform the market, since not every company in the fund is going to see big increases in value. But you don't need to beat the market to become rich through investing if you buy ETFs consistently over time and take a responsible approach to balancing risk and potential rewards.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Can't pick stocks? Investing can still make you rich appeared first on The Motley Fool Australia.

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• Why this ASX dividend share is a retiree's dream
• The pros and cons of buying Qantas shares this month
• How many shares in this high-dividend toll road stock do you need for a $10,000 income stream?
• Which ASX 200 tech stock has Bell Potter just downgraded?
• Stop 'saving', start investing! How to target a $1 million ASX share portfolio

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investing can make you rich if you do it right. Perhaps the best example of this is Warren Buffett who has become a billionaire largely through a series of sound investments.

The good news is, anyone can follow Buffett's advice and have a very good chance of building substantial wealth for themselves over time. In particular, there's one solid investment that carries very low risk that Buffett recommends and that's all but certain to leave you with a seven-figure nest egg if you invest enough money in it.

Here's what it is. 

This Warren Buffett recommendation can pay off for you

Although Buffett has made his fortune by selecting individual stocks (and companies) to invest in, his recommendation for most investors is not to follow in his footsteps. Instead, he suggests the majority of people are better off putting most of their money into one single investment: an S&P 500 index fund. 

The S&P 500 is a stock index commonly used as a measure of how the market as a whole is doing. The index consists of 500 of the country's largest companies and is weighted by market capitalization. Market capitalization is calculated by multiplying the total number of shares times the price per share, so this means that companies with higher valuations have an outsized impact on the performance of the index as whole.  

Because the S&P 500 is intended to track the performance of these 500 large companies, with larger companies making a bigger impact, its performance is determined by how well America's biggest businesses do over time. And that's one big reason why Buffett recommends this index for most investors. He's made clear he'd never bet against the American economy, and these companies are the driver's of it.

Why bet big on the S&P 500?

An S&P index fund has a number of huge advantages for investors. Those who put their money into an S&P 500 index fund don't have to individually analyze dozens or hundreds of companies to decide which ones to buy stock shares in. Instead, their purchase of the index fund gives them a small ownership stake in a huge number of companies that are household names.

The companies that make up the S&P 500 are also diverse, ranging from Apple (NASDAQ: AAPL) to Harley-Davidson (NYSE: HOG) to Caesars Entertainment (NASDAQ: CZR) to Kohl's (NYSE: KSS). So not only are you investing in established businesses, but you're also benefiting from instant diversification with the purchase of one simple investment. This instant diversification reduces investing risk and is another reason why Buffett's recommendation is a solid one for most people. 

Investors who follow Buffett's advice will also benefit from low investing fees. Fees are low because no one has to manually select the stocks included in an S&P 500 index fund, as the fund's composition is simply determined by each company's inclusion in the S&P 500 and its valuation.

Low fees mean investors get to keep more of their returns and their portfolio balance isn't reduced by paying a professional fund manager to individually select investments.

Is this investment really likely to make you a millionaire?

While it's clear there's plenty of benefits to investing in an S&P 500 index fund, the big question is, can you really build a seven-figure nest egg with a single investment that isn't going to outperform the market? 

The answer is an unequivocal yes. The S&P 500 has consistently produced average 10% annual returns over the long term. So if you invest just $506 per month over 30 years in an S&P index fund, you'll almost certainly hit your $1 million goal. And the more you invest, the faster you can reach that milestone. 

If you want a safe, simple, hands-off investment that requires no effort on your part to make you a millionaire, buying into this Buffett pick is a no-brainer. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Want to be a millionaire investor? Consider this Warren Buffett pick appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Why this ASX dividend share is a retiree's dream
• The pros and cons of buying Qantas shares this month
• How many shares in this high-dividend toll road stock do you need for a $10,000 income stream?
• Which ASX 200 tech stock has Bell Potter just downgraded?
• Stop 'saving', start investing! How to target a $1 million ASX share portfolio

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Saving $1 million may sound like a good retirement goal. And you may assume a seven-figure nest egg would give you plenty of income to enjoy your later years.

The reality, however, is that $1 million in your retirement portfolio may not provide nearly as much money as you think. Here's the reality of just how much you can do with it.

Why a $1 million nest egg doesn't go as far as you might think

While a nest egg valued at $1 million may sound like a lot, you need to keep a few things in mind:

• If you withdraw too much from your investment accounts, you could end up with an account balance that's too small to earn many returns, and that puts you at risk of running out of money. 
• Taxes could reduce the actual amount you have to spend after you've taken withdrawals from your retirement accounts.
• Inflation will reduce your buying power as prices go up over time. 

To avoid withdrawing too much from your accounts, you should decide on a safe withdrawal rate. That's the amount of money you can safely take out without risking your savings running dry while you're still alive. Traditionally, experts recommended a 4% withdrawal rate in your first year, which could be adjusted up by inflation each year. Because of longer life spans and lower future projected returns, this may be a bit too aggressive if you want to be sure you won't fall short. You may want to opt for 3.5% instead. 

That means a $1 million nest egg would leave you with around $35,000 or $40,000 in annual income at most. When combined with Social Security, that may seem like enough. But don't forget to factor in state and federal taxes. You won't get to keep all your money because of your obligations to the government, and the exact amount you'll end up bringing home depends on a huge number of factors including your filing status, the deductions you're eligible to claim, and where you live. But you'll likely lose thousands to the IRS and your state. 

You should also think about what inflation will do to your buying power. If you're planning to save $1 million for a retirement that's 20 years away, a $35,000 income from your investments in the future isn't going to buy you what a $35,000 income would pay for today. The price of goods and services will be much higher by that time, so your $35,000 might have only around $23,000 in buying power, assuming 2% annual inflation over time. 

All of this means your $1 million, which sounds like plenty, may not be enough. To make sure you don't find yourself falling short, don't assume a big number like $1 million will be sufficient to support you. Instead, set a personalized savings goal by taking into account your future spending needs, as well as the impact of taxes and inflation, to ensure you have enough to live on in your later years. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is a $1 million retirement nest egg enough? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• How many shares in this high-dividend toll road stock do you need for a $10,000 income stream?
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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

You should invest in Bitcoin if this is your goal

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Most people want to retire rich, or at least with plenty of money to provide financial security and a chance to enjoy life.

Unfortunately, far too many people end up with too little money set aside for their later years. 

If you want to make sure you're a wealthy retiree, then there are six rules you'll need to follow throughout your life to get you there -- and breaking any one of them could seriously damage your long-term financial prospects.

Here they are: 

1. Don't spend more than you earn

Earning a high income doesn't guarantee you'll end up wealthy in retirement. And earning a low income doesn't always doom you to struggle. 

The key factor that affects your financial security in retirement isn't how much you earn, but how much you spend. If you're consistently spending all of your paycheck -- or worse, spending more than you earn and taking on debt -- you're never going to be rich. 

Instead, you need to live well below your means so you can save enough to build a nest egg that will support you once you're no longer working. Saving at least 20% of your income is ideal. 

2. Invest an appropriate amount of your assets in stocks

Most people can't just save their way to wealth because their savings rate would need to be too high.

Say that you define "rich" as having $1 million saved, and you have 30 years to get there. You'd need to save more than $2,500 per month to hit your target if you stuck your money into a high-yield savings account and earned only a 0.5% annual return on investment. 

But if you put some of your money into the stock market and earned an 8% average annual return, your monthly savings target would come down to just over $735. That's a lot more doable, and that return is consistent with that of the broader stock market over the long run.

You don't want to put too much into stocks, though, as you don't want to risk outsize losses. The best option is to develop a personalized investing approach based on your age and risk tolerance. If you don't want to do that, an easy shortcut is to subtract your age from 110 and use the resulting number as the percentage that you invest in the market. 

3. Watch your investment fees

Investment fees eat away at your returns. You need to watch what you're paying to invest your money. 

Pay attention to:

• Expense ratios, which are costs of owning mutual funds or ETFs expressed as a percentage of the fund's assets.
• Advisory fees, which are charged as a percentage of assets under management for actively managed investments. 
• Administration fees, which some 401(k) plans charge.
• Inactivity fees, which some brokerage firms charge. 
• Commissions, which you sometimes pay for purchasing assets.  

Keeping your fees as low as possible can help maximize your returns so you don't waste tens of thousands of dollars over your investing career. 

4. Build a diversified portfolio

When it comes to your retirement funds, you can't afford to put all your eggs in one basket. Investing too much in any particular type of asset, any one company, or any one industry could put you at too great a risk of suffering outsize losses.

You can minimize the investing risk you're taking on by buying a diverse mix of different assets.

If you're purchasing shares of individual companies, watch the mix of companies you're buying to ensure you end up diversified. You can also invest in exchange-traded funds, such as an S&P 500 index fund, to make diversification easier.

5. Invest for the long term

Day trading may seem like a good way to make money by capitalizing on market trends. For most people, it's not.

While you may be able to make a profit sometimes if you get lucky, even financial professionals have difficulty consistently beating the market by actively trading stocks they hold only for short periods. 

Instead of gambling on your instincts paying off, invest in companies you'd be happy to hold on to for at least a decade. This will reduce your risk. And when you're making a long-term commitment, you'll have more time to devote to researching options and getting to know the companies and industries you're investing in. 

6. Invest only in what you understand

Lastly, you can't afford to chase obscure investments or get-rich-quick schemes with your retirement funds if you want to be wealthy. You need to know what you're investing in, how it's supposed to make money for you, and why you're investing in it.

By following these six rules, you should hopefully end up saving plenty of money for retirement and investing it wisely so it can work for you and help you to build the wealth you need to live the life you deserve as a retiree.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Don't break any of these rules if you want to retire rich appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Why this ASX dividend share is a retiree's dream
• The pros and cons of buying Qantas shares this month
• How many shares in this high-dividend toll road stock do you need for a $10,000 income stream?
• Which ASX 200 tech stock has Bell Potter just downgraded?
• Stop 'saving', start investing! How to target a $1 million ASX share portfolio

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

I'm not going to bury the lede. Another stock market crash is going to happen.

I know this not because stocks are overvalued (although they probably are) or because COVID cases have continued spiking, or because the federal government seems unlikely to compromise on more financial relief, or for one of almost a dozen other reasons. 

I know it because stock market crashes always come. In fact, just in my lifetime alone, I've lived through:

• The crash of 1987, when the S&P 500 lost more than 30% of its value in just under 40 days
• The bursting of the DotCom bubble, when the S&P fell more than 44.7% over two years in the early 2000s
• The 2008 financial crisis, when the market shed over 50% of its value in under a year and a half
• The coronavirus crash

And I'm only in my late 30s. 

But despite the fact I'm 100% confident the market is going to crash again, I'm not worried about my investments or planning to reduce the amount I'm putting into the market. And, if you've done the right things, you shouldn't be either. Here's why. 

You can't predict a market crash, but you can be ready for one

Although no one ever knows when a market crash is going to happen, everyone should know one could occur any day.

In fact, crashes often come as a result of burst bubbles, so everything may look like it's going really well with the stock market (or real estate) -- before all of a sudden... it isn't. 

Since you can't predict when a crash will happen, you should be prepared for one at all times. That doesn't mean keeping your money out of the market, as you need to invest in stocks to build wealth. Instead, it means:

• Not investing money you'll need in the near term. Some recoveries are very quick (including the most recent one). Others can take years. If you have money invested that you'll need within the next two to five years, you may not have time to wait for the market to rebound and you could be forced to sell at a loss. You don't want to do that. 
• Not trying to time the market. Since knowing what's going to happen is impossible, don't try to buy at rock bottom or sell at the peak. Instead, invest for the long term and consider using dollar-cost averaging to acquire your positions. That means investing the same amount in similar assets at regular intervals, so chances are good you'll buy some shares at a high price and others at a low one, and things will even out. 
• Paying attention to your risk exposure. Over-investing in equities is a risky endeavor, as it ups the chances you'll suffer outsized losses during a market crash. At the same time, not investing enough in stocks is also risky because you'll miss out on the chance to earn reasonable returns. Take the time to think about what balance is right for you. 
• Not chasing short-term gains. If you want to be prepared for a market crash at all times, your portfolio can't include any investments you'd be unhappy holding for years -- just in case you happen to own them when a crash happens and you need to keep them until the recovery to avoid locking in losses. 
• Assessing what kind of investor you are. It's hard to consistently beat the stock market -- especially during times of turbulence. While it was easy for most people to make money during the 2010s when market volatility was low, these are much more uncertain times. If you're a nervous investor likely to react in fear or you don't have a sound investment thesis, investing in index funds may be a better bet than picking individual stocks. At no time would an investment held consistently in an S&P index fund have been a losing investment if you owned it for at least 20 years -- so you're taking much less risk in case of a crash if you opt for one, since it's all but certain your investment will recover any losses over time.  

If you take these five steps, you can join me in knowing that you're 100% ready for a market crash whether it happens today, tomorrow, or in five years' time. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Will another market crash happen? appeared first on The Motley Fool Australia.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

It's not surprising that many investors watch eagerly for news of Warren Buffett's stock trades. The Oracle of Omaha has made a successful career (and lots of money) picking stocks. 

But while there's a lot you can learn from Buffett, investing like him may not be the best move. His investing goals, his portfolio, and the size of his pocketbook are likely quite different from yours. Instead of emulating his trades, you may be better off listening to his advice -- and in particular, the guidance about which investment he believes most people should own. 

What investment does Buffett recommend for most investors?

Buffett's advice for the average investor is simple and easy to follow: Invest in an S&P 500 index fund. 

Index funds track the performance of market benchmarks. The S&P 500 index Buffett recommends specifically attempts to mimic the performance of 500 large-cap U.S. stocks that, together, account for 80% of all U.S. market capitalization. 

To be included in the S&P 500, companies must meet certain criteria, including having positive reported earnings for a certain number of quarters and having a reasonable price per share. The index is also weighted by market capitalization, which means each company's representation is proportional to the total value of all of its outstanding shares. 

When you invest in the S&P 500, you're making a bet on large American companies that have a proven track record. In fact, when you buy an S&P 500 index fund, you'll take a tiny ownership stake in companies you're almost assuredly familiar with, including Amazon.com Inc (NASDAQ: AMZN), Apple Inc (NASDAQ: AAPL), Clorox, Coca-Cola Co (NYSE: KO), Johnson & Johnson (NYSE: JNJ), JPMorgan Chase, and Ralph Lauren. 

Why does Buffett recommend investors buy the S&P 500 index fund?

As you may be able to guess from the list above, the S&P 500 gives you exposure to businesses across different industries, including tech companies, retailers, and those selling consumer goods. And that's great news, because when you buy into an S&P index fund, you're pretty much instantly diversified. 

Diversification isn't the only benefit, though. Your returns will parallel the performance of the index, which -- between 1926 and 2018 -- provided average annual returns of around 10%. It's very difficult for the typical investor to consistently beat that performance over a sustained period. 

Investors trying to time the market can also get themselves into trouble, but putting your money into an S&P 500 fund all but eliminates the risk of buying high and selling low (at least for those who leave their money alone for the long term). In fact, anyone who has ever put their money into an S&P 500 index fund and left it alone for at least 20 years would've ended up profiting even if they bought in when stocks were at their most expensive. And S&P 500 index funds don't require active management since they simply include the stocks that make up the index, so they come with few fees that eat away at investment returns. 

In sum, you don't have to time the market, you don't have to consistently pick winning stocks, and you don't have to worry about paying high fees if you buy an S&P 500 index fund. It's a simple, easy way to bet big on America and maximize the chance of earning a generous return while minimizing risk, so it's no wonder Buffett thinks it's the best bet for most people who don't spend their entire careers evaluating investments. 

And while Buffett and other disciplined investors can definitely do better picking individual stocks than investing in an S&P index fund, you need to really be willing to put in the work to do that. Unless you're committed to developing a sound investment strategy and becoming an expert in the industries you invest in, taking Buffett's advice and putting your money into this safe, simple investment for the long run may be the best financial move you'll make. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and Apple. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Johnson & Johnson and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon and Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Apple (NASDAQ: AAPL) and Tesla (NASDAQ: TSLA) have a lot in common. Both companies are innovators that have manufactured demand for their revolutionary products, and both have strong brand cachet and a loyal band of devoted followers. They also both come with high share prices, largely because of these things. 

The tech giants also have something else in common: Both announced stock splits this month that will substantially lower the cost of company shares. Apple's 4-for-1 split should bring the price down from around the $500 a share mark to closer to $125. Tesla's 5-for-1 split means you could pay somewhere around $420 per share instead of the $2,100 it's currently trading at (depending on prices when the splits happen). 

There's a strong argument to be made that these splits don't really matter (I know, because I made it). But there are also two big reasons to believe they will actually be a boon to investors. Here's why. 

1. Increased demand for shares could drive up the price

First things first -- a stock split does not change the value of shares of Apple, Tesla, or any other company. Stock splits do not affect how much a share is worth, nor do they affect a company's market capitalization. When a split occurs, there are simply more shares outstanding, each with a proportionally lower price tag. After all, splitting a $100 stock so you end up with five $20 shares is absolutely no different than taking a $100 bill and splitting it into five $20 bills. 

But stock splits do mean individual shares cost less to buy. Historically, this has been the driving force behind most company decisions to split their stocks. When a stock costs $125 instead of $500, more people can afford to buy a share. This can lead to increased demand, which in turn can drive the stock price up even though the value of the company hasn't actually changed.

Theoretically, this shouldn't be an issue anymore because a growing number of investors now have access to fractional shares. These are what they sound like -- fractions of a share available to people who don't have the money to buy full ones. However, while more brokers currently offer fractional shares, not all do. And some that do won't permit you to place limit orders for them, which makes it harder to buy at your desired price.

A typical investor probably isn't going to switch brokerages just to gain access to fractional shares, so a split can still make the stock more accessible. Plus, not everyone who is potentially interested in buying a share of Apple or Tesla is even aware of the ability to buy fractional shares. For casual investors who want to buy a few shares, a quick look at an expensive per-share price might deter them before they discover this as an option. That can be an especially big problem with companies like these that are household names. 

As fractional shares become more widely available and more familiar to investors, this benefit of a stock split will become less and less important. But, for now, the fact remains that there likely will be a surge in demand for these stocks when their price per share goes down after the split. 

2. Perceptions matter

When investors pick stocks, they should do their research to assess whether the share price is worth paying. After all, a stock with a high per-share price tag is a bargain if it's got strong growth potential, while one trading for just a few dollars is overpriced if the company is in trouble and its price per share falls quickly. 

But most investors aren't 100% rational, and far too many retail investors often judge whether a stock is "expensive" based on the price of a share. In fact, a look at investing service platform Robinhood's most popular stocks shows that many of the platform's investors (who are often younger and less experienced) are flocking either to well-known tech stocks or to stocks trading at $10 per share or less. A lot of these companies with sub-$10 share prices aren't great ones, but inexperienced investors may look upon them as bargains solely because they don't cost a lot to buy. 

For the many investors seeking out "cheap" offerings, a high share price may deter them from buying a stock trading for hundreds or thousands of dollars -- even if they can buy fractional shares for just a few dollars. It just seems expensive, if they confuse price for value. 

And for the many "irrational" investors out there, owning a fractional share often just doesn't seem as attractive as owning a full share -- even though in reality there's no difference and they'll make the same potential gains either way. In other words, the fact that people could afford to buy only a 0.25 share of, say, Apple, may be enough to convince them not to buy in at all, whereas they'd be happy to pay $125 for one full share. 

Of course, no one wants to think of themselves as an irrational investor. But the fact is, a great many people's subconscious biases do shape their financial decisions all the time -- sometimes to their detriment. Companies know this and are aware that, by lowering their share price, they'll look like a better option to investors, even if absolutely nothing has changed. 

So, do Apple's and Tesla's stock splits matter?

While I stand by my position that Apple's and Tesla's splits shouldn't matter to investors, they very well might.

The fact that Apple's and Tesla's stock prices have both gone up since the announcements of their splits shows they still have an effect, at least in the short term. Of course, if fractional share trading catches on, investors in the future may not see quite the bump in share price that Apple and Tesla owners are currently enjoying. 

The Motley Fool owns shares of and recommends Apple and Tesla. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Christy Bieber has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Apple and Tesla. The Motley Fool Australia has recommended Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Most people would agree that 2020 has had more than its share of disasters. In fact, thanks to the novel coronavirus, the country is living through both a major public health crisis and a major economic crisis concurrently.

Unfortunately, times of trouble are a fact of life and everyone is bound to experience them sometimes. But, as a recent survey from Ameriprise Financial shows, there's some good news: The majority of investors surveyed (more than 3,000 were surveyed and each had at least $100,000 in financial assets) realise the potential for problems and have taken some steps to prepare for unexpected bumps in the road.

Here are some of the key steps they've taken. 

1. Saving for emergencies

Saving for emergencies is, unsurprisingly, the top way people prepare for calamities that life could throw at them. In fact, 64% of survey respondents indicated they had set aside money for emergencies. This is a smart move, both because it can provide you with some peace of mind during these challenging times and because it can help you to protect your long-term financial security.

If you have no emergency fund and you experience a job loss, cuts to your employment hours, or unexpected expenses, you'll likely have only bad options to resolve your financial problems. Borrowing money to cover your surprise costs could saddle you with interest payments, leaving bills unpaid could ruin your credit score and have other dire consequences, and being forced to sell stock or other investments before you're ready could mean locking in losses if you get stuck selling during a market downturn. 

Most experts recommend having an emergency fund to cover at least three months of living expenses and ideally closer to six months. With COVID-19 cases spiking nationwide, the country in a recession, and the threat of a stock market crash looming, erring on the side of caution and saving a larger emergency fund is probably best. 

2. Preparing for life after death

Preparing for what happens after you die isn't fun, but it's a key part of financial preparedness because most people want to make sure their loved ones are provided for.

As many as 62% of survey respondents indicated they've named their beneficiaries, and the same percentage have purchased life insurance. Thirty-eight percent have also made a formal estate plan, or at least a will, with help from a financial professional.

If you have anyone depending on your income or the services you provide (such as taking care of children or elderly parents) this is a key step toward financial readiness. Most people don't have enough invested for their loved ones to live on if their income stops coming. If you don't but people are counting on you, you need to have plans in place to protect them.

3. Adjusting their lifestyle

Almost four in 10 Americans indicated they've made lifestyle choices to prepare for potential unexpected events in the future.

By cutting back on unnecessary spending and making other smart financial moves, you can use the money to build up the aforementioned emergency fund that will help protect you from the financial pain of unexpected expenses.

Adjusting your lifestyle can also be a smart move to free up more money to invest for your future. If there's another market crash, it may present great buying opportunities. If you have spare cash to purchase shares at a discount, you can maximize your potential returns on investment and set yourself up for more security later in life.

And if any of your investments sustained losses during the last market crash but didn't fully recover in the rally that followed, making lifestyle changes so you can invest more could help you get back on track toward achieving your goals. 

4. Making a comprehensive financial plan

Close to a third of Americans worked with a professional to make a comprehensive financial plan in order to be ready for financial disasters. 

Having this type of roadmap can ensure you're making the wisest use of your money and investing what you need to build wealth. While many people find they need guidance from a professional to make a long-term financial plan and develop a sound investment strategy, this isn't necessarily the case for everyone. If you take the time to sit down, set your own goals, and determine what you need to achieve them, you'll still be putting yourself in a good position to cope with anything unexpected that comes your way. 

Should you take these steps?

Protecting yourself and your loved ones in case of emergency is always important but it may be especially so during these turbulent times with coronavirus cases spiking and a growing number of states locking down again – which could potentially result in a deeper recession.

Making an emergency fund, providing for your family in case of your untimely death, and living within your means are important always, but are especially essential now – so be sure to check these items off your to-do list ASAP. 

Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Most investors are taking these steps to prepare for financial disaster appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

For some investors, especially those with limited funds, looking for stocks with the lowest share price may be tempting. After all, if a stock has a low price per share, you can buy more of it. But just because a stock appears to be cheap doesn't mean it's a good buy. In fact, some of the most expensive stocks in terms of price-per-share can be way better investments than almost any penny stocks, which have very low share prices but come with outsize risk.

And while it may have made sense in the past for investors to limit their purchases to companies with low share prices if they didn't have much money to put into the market, that's no longer the case. In fact, rather than looking for cheap stocks, you should look for companies you believe will perform well over time regardless of the price. You can do that thanks to fractional shares.

The first thing to remember when looking for stocks is that the share price shouldn't matter to you; what matter are the risk and the potential for growth. A stock that costs $1 per share is cheap to purchase, but it's not a very good buy if the company is on the verge of insolvency and has no plans to fix its financial problems. On the other hand, a stock that costs $5,000 a share is "cheap" in terms of presenting a great value if there's solid reason to believe shares may be worth $10,000 next year. 

Many investors used to be limited by the size of their bankrolls to buying companies with low-priced shares simply because brokerages required you to buy at least one full share. That's not the case anymore because a growing number of brokers allow you to buy fractional shares.

These are just what they sound like: fractions of full shares (in some cases as low as 0.001 of a share). Many big-name brokers have opened the door to buying these partial shares through a process called "dollar-based investing." You specify how much to invest in a company and you'll get whatever part of a share your cash can buy. So if you want to buy Tesla even though it's trading at $1,650 a share and you only have $20, you can become the proud owner of 0.0121 of a share. 

It doesn't matter that you're purchasing such a small stake; if the stock price rises, your percentage gains will be the same as any other investors' are. But, thanks to fractional shares, you won't have to be restricted to looking for companies with low share prices, such as the untested NIO, if you want to invest in an electric vehicle maker. You'll have the chance to buy the industry leader with the higher per-share price if you think it presents a better balance between potential risk and possible gains. 

How to pick companies to invest in

Since you're no longer limited by your pocketbook, you have a vast pool of potential investments. To find the right ones, you'll want to consider factors including:

• The company's track record and potential for growth.
• Its competitive advantage.
• Its leadership team.
• Whether the stock is being sold at a fair price.

It can take time to research which stocks to buy, especially when you don't have to restrict yourself to stocks you can afford to buy one or more shares of. But if you put in the work, learn how to make informed choices, and invest for the long term, your efforts can often pay off in the end. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Christy Bieber has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Are you thinking about starting to invest but on the fence about getting your money into the market during these turbulent times? 

It's natural to be worried about investing in a recession, especially as the stock market has been somewhat volatile lately (to put it mildly). But while you may be uncertain about jumping in with both feet, there are a few great reasons it makes sense to get your money into the market ASAP. 

That doesn't mean investing is right for everyone, though. So here are three big reasons to invest now along with three reasons to wait. 

3 reasons to invest now

Why to get your money into the market, ASAP. 

1. There's never a wrong time for long-term investors to get started: When you're investing for the long term, it doesn't really matter when you buy in since you should (hopefully) make a profit over time. That's true even if you buy during a bubble, because while you may suffer short-term losses during a market correction, your investment should come back strong during the recovery that will inevitably follow. 
2. Recessions present buying opportunities: Periods of economic downturn often provide the opportunity to buy index funds or shares of high-quality companies when they're on sale. You could potentially set yourself up for higher returns down the line by buying at a discount. 
3. Trying to time the market could cost you thousands: Over a long investing career, missing just a few key days could cost you hundreds of thousands of dollars. It's impossible to predict when those important days will happen; few people see rallies coming before they occur. Instead of trying to wait to invest until stocks hit rock-bottom prices, it's better to get your money in now so you won't miss out on any market surges that could net you major profits. 

3 reasons to wait 

Although there's no wrong time for long-term investors to get started, there could be a wrong time for you to personally start investing if your finances aren't in good shape. There are three key reasons now may be a bad time to put your money into the market. 

1. You don't have an emergency fund: At all times, but especially in these turbulent times, you need to have an emergency fund because you never know when an illness, income cut, or other financial emergency could occur. You don't want to invest only to have to sell soon after (potentially at a loss) because you need the money for an emergency. So make sure you have liquid funds first, to cover at least three to six months of living expenses, before putting your money into the market. 
2. You have a lot of high-interest debt: Although stocks have, over time, produced a better average return than virtually any other investment presenting a reasonable risk, it's very unlikely they'll produce a return on investment that's higher than the one you'd get from paying off high-interest debt. If you owe money on credit cards, payday loans, or other debt that's costing you a fortune in interest, get that taken care of before investing.
3. You haven't devised an investment strategy: Long-term investors with a sound strategy almost always do well over time. But first, you need that sound investment strategy. If you're willing to spend time learning about and monitoring your stocks, you may be able to beat the market by purchasing shares of individual companies. But unless you're really interested in doing that, your best bet may be to build a diversified portfolio of index funds. 

Should you invest or check other items off your to-do list first?

The bottom line is, if you have the financial basics covered, there's no bad time to invest in the market. Whether you buy during a correction or the peak of a bubble, you should still do well if you pick solid investments and leave your money alone over time. History has proved it. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 reasons to invest now, and 3 reasons to wait appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Christy Bieber has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The stock market has been on a wild ride lately, and investors aren't enjoying it. In fact, a Gallup poll taken at the end of April 2020 revealed just 21% of people think stocks or mutual funds are the best long-term investment. This was the lowest level since 2012. And that was well before it was announced that the country had officially entered a recession. 

If you're concerned about buying stocks now, you aren't alone. But you may also be making a big mistake as a recession is as good a time to invest as any -- or perhaps an even better one.

Don't take my word for it either. Heed the advice of the Oracle of Omaha, as Warren Buffett, one of the world's best investors, has a lot to say about investing in troubled times. Here are some pearls of wisdom to take to heart. 

1."Widespread fear is your friend as an investor because it serves up bargain purchases"  

More than half of all Americans fear the market hasn't hit bottom yet. If you're one of them, you shouldn't let fear prevent you from putting your money in.

As Buffett explained, when most people are fearful, it's a good opportunity to purchase shares of stock at low prices. And who doesn't want to buy low and sell high?  

2. "The best chance to deploy capital is when things are going down"

While the market has largely recovered from the coronavirus-driven crash in March, another correction is inevitable as many investors are still overvaluing stocks because they aren't taking into account the full economic impact COVID-19 could have throughout the summer and fall. 

If the market ends up crashing again, you may be tempted to sit on the sidelines and wait until the bad times have passed. Instead, heed Buffett's advice about the opportunity to invest on the downswing and take the chance to get your money in to score even deeper discounts. 

3. "Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance"

A quick glance at the news shows that commentators aren't very hopeful about the future. And with the country in a recession, coronavirus cases rising, and justifiable fear of a second wave, you won't get much reassurance right now.

But according to Buffett, that's a good thing because you won't be paying a high price for words that mean nothing in the end since, after all, no one can predict what's coming. 

4. "Risk comes from not knowing what you're doing"

Americans may be wary of stocks because they're worried about the risk of loss -- and March's market crash didn't help allay their fears. But, as Buffett points out, putting your money into the market really only carries big risks if you don't know how to do it right.

Of course, any investment could lose money. But if you know how to pick solid companies to invest in (or you invest in index funds that track the market's performance) and you build a diversified portfolio, the most likely outcome based on decades of historical data is that you'll earn a reasonable return overall, over time.  

This doesn't mean no investments will perform poorly, and it doesn't even mean that you won't have bad years. But it does mean that when you take the time to learn how to invest, you invest for the long term, and as you make informed decisions in building a diversified portfolio, you reduce your risk -- even if you're investing in a recession.

Of course, on the flip side, if you think you can invest your money during the downturn and make a quick buck without taking the time to learn the fundamentals of sound investing, you could be setting yourself up for disaster.  

5. "Predicting rain doesn't count; building arks does"

There's plenty of reason for doom and gloom during the 2020 recession, but anticipating bad times does little to help you survive them.

Instead, follow Buffett's wise words and take the time to build your ark. You can do this by developing a solid investment strategy, researching and picking stocks you'll be happy holding for a while, and making sure you've taken the steps needed to recession-proof your finances. 

Don't let the opportunity to invest during a recession pass you by

Recessions almost always present buying opportunities, but this one is unique because it wasn't driven by natural economic cycles but rather by a black swan event. If effective treatments are developed for coronavirus or a vaccine comes along sooner than expected, economic recovery may be swift.

Don't miss out on the chance to invest when things look bleak -- as long as you do it wisely. Otherwise, you could very well come to regret it. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Worried about investing in a recession? Take this advice from Warren Buffett appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Stop 'saving', start investing! How to target a $1 million ASX share portfolio

Christy Bieber has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Managing money successfully can be challenging, and no one is perfect at it. In fact, money mistakes are very common; everyone makes them from time to time. The key is, when something goes wrong, you need to respond quickly and correctly so you can minimize the damage.

Figuring out what to do when your financial management has gone off the rails can be a big challenge, but with these simple steps, you can recover and hopefully prevent similar problems in the future. 

Take stock of your situation

First, you need to figure out what your mistake has done to your financial stability. If it left you in debt, make a list of how much you owe. If it's damaged your credit, check what your new score is. Whatever the error, you can't come back from it until you know what you have to recover from. 

Identify ways to mitigate the damage

After determining how your mistake has set you back, it's time to find ways to fix the problem. This might mean making a debt payoff plan, bumping up your retirement savings, or figuring out how to raise your credit score after a bad patch. 

The key is to try to get back to where you were as quickly as possible by making an aggressive plan to undo the damage. If you have a lot of debt because of your disaster, for example, you may want to think about working an extra job to pay it back more quickly. 

Determine the cause of your error

You don't want to make the same money mistakes that require you to work so hard to keep correcting, so figure out what went wrong. This may mean reviewing your financial accounts to see if you overspent, figuring out why you don't have an emergency fund and how to save one, or trying to determine how a bill fell through the cracks. A little introspection can go a long way toward identifying why you hit a bump in the road. 

Make a plan to prevent similar problems

After identifying the reason for your money mistake, you should be able to find a way to change course.

If you overspent on Christmas, for example, you can set a holiday budget now and save up a small amount each month so this doesn't happen to you next time. If you ended up borrowing because you couldn't stick to your budget, this might mean switching to a different system such as keeping cash in envelopes labelled for different categories of expenditures and buying those things only until the cash is gone each month. 

The solution will be personal based on the cause of your money problem, but you want it to be something concrete, workable, and measurable. If your mistake was overspending, for example, you don't want to just say you'll spend less; this isn't an actionable plan. 

You don't have to let a money mistake mess up your financial future

By taking these steps after a money mistake, you can lessen the damage from your error and reduce the likelihood of a repeat. And you'll come back from your financial faux pas stronger than ever. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post How to Recover From a Big Money Mistake appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.