Image by: 401(K)2013
By Michael Sterling
Nobody has gotten rich without investments. Since Roman times, people have invested something or other to gain status. It always takes sacrifice to reap rewards in the long run. In the digital age, investing has become a bit more complicated. There’s much more variety than ever and technology is always reinventing itself.
It’s hard to wrap your head around investing, but if you want to succeed, you need to understand the concept. Money isn’t going to just appear over night. Investing is a process. A process that can ultimately become your ticket to retirement. All it takes is some thought.
If you are new to investing, get acquainted with these terminologies:
- Assets – The things you own that will ultimately give you money.
- Liabilities – The things you own that will ultimately cost you.
- Expenses – The amount of money you spend on everything.
- Cash Flow – The money that you bring in (from your job or assets).
The first thing you need to know before you start investing your money is that if you don’t have EXTRA cash to spend (after your expenses), you shouldn’t invest. Otherwise, you will always be paying back debt and your investments will be pointless, right? A great investor knows how to spend his money and doesn’t spend it on liabilities. The money is spent to buy assets.
Save To Buy & Buy To Save
If you feel like you don’t have a lot of extra cash to spend, here’s an idea: create a separate account called your “Future” account and make your payments automatic. Let’s say you take 5% out of your paycheck to put into the account. You can then use that money towards your investments. If your bimonthly paycheck is $1,500 for example, $88 would be put automatically into the account every pay cycle.
One month later, you’ll have $175. Three months later, you’ll have $525. 6 months later, you’ll have $1050. In 1 year, you’ll have $2,100. Already you are on your way to having a good amount to put towards buying your assets. However, don’t confuse SAVING with INVESTING. You need to save money first so that you can later spend that money on things that will make you earn money.
The Power Of Automatic Payments
David Bach, financial expert and author of the Automatic Millionare, says that making your payments automatic is the best investment you can make. When you get your paycheck, what do you do with the money? There’s the mortgage, bills, car payments, etc. When you make your bills automatic, you can easily surpass late fees without a worry.
If you put 5% towards your credit card, 10% to student loans, and 2.5% to your “Future” account, over time the credit card will be paid off right? Why not move that 5% to your “Future” account to make it 7.5%? Same with the student loan. It’s also great for your morale. When your giving your hard-earned cash towards debt, you are also seeing the”Future” account build up – so it appear as if you aren’t losing money.
Stocks, Bonds, and Mutual Funds
This is one of the most easy (and fragile) forms of investing your money. It takes a lot of knowledge to get yourself acquainted with this world. When you own a stock, you own a piece of that company, bonds are a basic “I owe you” to that company, and a mutual fund is a collection of all your assets being looked after by investment advisers.
When a company makes money, it attracts more investors to want to own the company – which increases the value. These are the kinds of companies you need to invest your money in. However, there are certain ways of predicting a company’s returns. You need to be smart with your decisions.
Here’s a tip: don’t invest all your money in one giant company in hopes that it will produce more returns for you. Stocks must be scattered about, because the market itself fluctuates and you stand a better chance of keeping money the more places you have it. When one goes down, another might go up.
Real Estate Ventures
Here’s a question for you. Can a house be an asset or a liability? It’s both – at different stages. When you first buy a house and the mortgage payments start to come with the costs of electricity, gas, etc., the house is a liability. However, say you’ve saved a bunch of money and put half the money down (from the money you’ve saved), and you pay the rest off in a matter of two years, you now own the property. What can you do after that?
Rent it out to someone and get a consistent monthly payment. Your one-time liability now became your asset – and a pretty good one at that. Investing in real estate is always a great idea, since most of the time, it will produce returns. However, land is land and there’s only so much of it, which means the prices are rising constantly.