When payday comes along, most of us take care of the bills and groceries. Some will pay off loans, whether these turn out to be home loans or car loans. Others may put money into their savings account, which is always a great idea.
Spending on goods and services first then going for loan repayments, and lastly, setting aside a bit for a savings fund is how most of my friends spend their salaries. But people tend to forget about another major component of personal finance and that’s investing. Investing – or personal finance investment plans – should be seen as something that’s just as important as a savings fund because it can help you achieve long-term goals, one of which is financial security.
It’s not hard to imagine, though, why investing is the last thing on people’s minds when they get their salary. For one, some things are more urgently needed. You and your family need a roof above your heads and food in your stomachs. Two, you don’t want debt collectors calling you day and night so you diligently pay your loans. So if there’s anything left after taking care of those things, you put that money in a savings account and even see a nice little bump on it when you check it after some time because it has earned some interest.
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Why Savings is Not Enough?
Unless you have millions in the bank, the paltry interest earned by a savings account cannot be relied on to sustain anyone these days, especially when central banks around the world are keeping interest rates very low to spur economic activity. Even if the savings account were to earn some interest, odds are, this won’t be enough to exceed the inflation rate. The inflation rate essentially eats away at the true value of your money so you need to make a decision to invest in something that’ll allow you to beat the inflation rate. Investing gives you a way to grow your money or at least retain the value of your money.
One thing that’s keeping people away from investing is the risks involved. However, all types of investments carry some form of risk but the investment choices are so varied that it’s possible to employ strategies to bring down these risks to a more comfortable level.
Investments can also be a complicated topic to learn about so many shy away from investing. But as with everything, if you take the time to study it, then it wouldn’t be too hard to understand. There are also financial advisers who can help you pick the right investments based on your financial goals and level of risk appetite.
Investment Options to Consider
So what are your investment options? Well, there are quite a lot to choose from. There are the various types of securities such as stocks and bonds. For stocks, you can go to a broker so they can assist you acquire stocks. There are the “old-school” brokers who you still have to visit at their offices but there are also online brokers which you can sign up for so you could start investing in stocks. For bonds, there are investment banks that can help you invest in these instruments. Compared to stocks, bonds are considered a less risky type of investment especially those issued by governments.
Mutual funds are another element of investment banking that you could look into. Mutual funds are basically a collection of various stocks and bonds. There’s an overarching theme to these mutual funds such as mutual funds that only invest in a particular industry or a geographic location such as investing in European companies only. Some have specific investment goals such as investing only in “ethical” companies so these don’t invest in tobacco and alcohol companies for example.
Then there are also assets. Real estate is an asset and many wealthy individuals made their fortune by investing in real estate. Donald Trump and hotelier Leona Helmsley are two notable individuals who made their fortune through real estate investments. For real estate, you could sell properties for a profit or rent them out.
Saving money is always a good thing but this should be complemented with investing because the interest you’ll earn from keeping your money in a savings account will likely be lower than the inflation rate. With so many investment options to choose from, it’s easy to employ various risk reduction strategies so that you can minimize your risks so chances that your investments can earn a profit will increase.