We have learned that money should not lie still without growing. Funds have this in-build capacity to become larger, and we need to capitalize on this capacity by investing them somewhere. That is, we have to cause our money to generate income or appreciation. Or speaking in financial terms, our money should be spent on a monetary asset in the hope that it will provide income in the future or will be sold later at a higher price. Investing money means to make a handsome profit from the investment in the long run. The idea that money should be used to bring us more money is so deeply ingrained in our heads that whenever we have some extra funds, we start wondering how to make them grow. And it does not matter how large or small is the amount we have in our hands, because, like Tesco, we live by the motto that every little helps.
The world around us is brimming with various investment ideas supposed to make us richer tomorrow than we are today. We are told, for example, that the best way to invest $10,000 is to put them in stocks, bonds,cryptocurrency or real estate. $5,000 can be placed in a high yield savings account or used to pay down debts. With $1,000, we can buy exchange-traded funds. $100 can be invested in 401(k), books, or online courses. We are even given practical advice on how to manage cents or pennies.
Indeed, there are numerous apps recently created that round up our payments for us. Every time we swipe our card in a shop, our payment gets rounded, after which an extra amount of lands in our savings account. When we buy a New Yorker in Barnes & Noble, we pay $8.99. The application will round our purchase to $9.00 and will put aside 0.01 for us. Although 1 cent or 1 penny is a truly infinitesimal amount, we make so many similar payments every day that we can collect eventually a more tangible sum of money with this tactic. But the however small or large amount we put aside, the main idea behind such financial manipulations is to squeeze more money from what we initially have.
Yet before starting to wreck our brains trying to decide how to invest the funds, we have got in our hands, it is advisable to check if any areas of our lives can benefit from them, for we can gain even when these funds do not increase. Financial advisors always suggest seeing if we can put our extra money towards personal debt, 401(k), or IRA. Taking care of our debts or pension will not bring more funds to our bank accounts but will definitely make our lives more financially secure and profitable in the future.
If you have personal debts and want to use your spare money to pay them off, it makes sense to start with consolidating them. When you have several debts with different interests, talk to your bank manager and ask if you can take a new loan to pay your unsecured debts. By consolidating your debts, you put all your existing loans into a single, larger loan that has a lower interest rate and lower monthly payments. Debt consolidation is convenient because it can be applied to any type of debt. Whatever debts you have, be it student loan, car loan, or personal loan, all of them can easily be rolled into one. Banks and credit unions are interested in seeing their loans paid. They will thus gladly allow you to consolidate your debts if in so doing, you will repay them quicker or at least more surely.
Paying off your credit card debt before investing money into some business or stocks is also financially more profitable for you. Try to do simple arithmetic. Banks can give you a 5 percent rate of return on your investment portfolio. But if you, say, have $5,000 in credit card debt, you will be asked to pay 23 percent interest on it. Suppose you have $10,000 to put in bonds, or stocks, or robo advisor. By investing these $10,000 instead of paying the $5,000 owned on your credit card, you lose 18 percent. Mathematics thus clearly show that paying debts is more profitable for you overall than making investments.
Equally more profitable is to put money into your 401(k) than invest them in high yield savings or CD. In the majority of workplaces, employers also contribute towards your pension. How much both of you will pay will depend on the details of your pension plan’s arrangement. The usual range of the contribution is from 3 percent to 6 percent of your salary. If you are not currently meeting the employer’s match, investing money in your 401(k) will help you do so. But remember that you cannot just invest a large amount of money in one go in your retirement plan, even if you have this large amount to spare. What you will need to do in this case is to put these funds into your savings account. Then, simply set your 401(k) contribution to the level that matches the level of your employer. You can also put up to $5,500 or $6,500, if you are older than 50, in a Roth IRA every year. Any of these investments in your retirement will bring you more profits and greater peace of mind that your new business or even a new professional certification.
It is only after you have paid your debts and taken care of your retirement that it is wise to make investments that will generate future income for you. A range of opportunities to do so is truly wide. You will just need to estimate your abilities correctly and take into account all the risks involved in your endeavors to make your investments successful.
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