Investing Money
is the process of using your money, or capital, to buy an asset that you think has a good probability of generating a safe and acceptable rate of return over time. The goal of investing is to make you wealthier, even if it means suffering volatility, perphaps even for years. True investments are backed by some margin of safety, often in the form of assets or owner earnings. The best investments tend to be "productive assets", such as stocks, bonds, and real estate.
Typically, saving money should come before investing money. Consider of the foundation on which your financial is built. The reason for this is simple: unless you inherit a substantial sum of money, you will need to rely on your savings to fund your investments.
If things are rough and you need money, you'll probably have to sell your investments at the worst possible time. Thats is not a prescription for financial success.
As a general rule, your savings should be enough to cover all of your personal expenses for at least three to six months, including your mortgage, loan payments, insurance charges, energy bills, food, and clothing expenses. In that way, if you lose your job, you'll have enough time to alter your lifestyle without the stress of living paycheck to paycheck.
Senator Elizabeth Warren popularized the so-called"50/30/20 budget rule" (sometimeslabeled"50-30-20") in her book, All Your Worth: The Ultimate Lifetime Money Plan. The basic ruleis to divide up after-tax income and allocate it to spend:50% on needs, 30% on wants, and socking away 20% to savings. Here, we briefly profile this easy-to-follow budgeting plan.
50% Needs:
Needs are the bills that must be paid and the good that are required for survival. Rent or mortgage payments, car payments, groceries, insurance, health care, minimum debt payments and utilities are all examples of these expenses. Theses are the "must-haves" for you. Extras like Movie, Netflix, Starbucks and dining out are not included in the "need" category.
30% Wants:
All of the things you spend money on that aren't absolutely necessary are considered "wants". Dinners and movies out, that new handbag, sporting event ticket, vacations, the latest eletronic gadget, and ultra-high-speed Internet are all examples. If you boil it down, anything in the "wants" category is optional. Instaed of going to the gym, you can work out at home, cook instead of eating out, and watch sports on TV instead of purchasing tickets to the game.
20% Savings:
Finally, set aside 20% of your gross income for savings and investments. Contributing to an emergency fund in a bank savings account, and investing in the stock market are all examples of this. If you lose your job or anything unexpected happens, you should have at least three months of emergency money on hand. After then, you can use the "spare money" for long-term financial goals.
Sound easy? It is however requiring you very first step, which, for a lot of people, is really difficult.Take action! If you are not comfortable with 20%, then tell yourself spend 10%, or even 100 dollars per month. Start doing it, no matter what. Also, be persistent, do not quit. Make saving a habit. At the end of the day, you are the one benefiting!
