If money grows naturally, there would be less hassle in the world. I would probably not have to write this article. Well, money does not grow on trees, but it can grow if you save a penny and invest it wisely.
Securing our financial well-being is a very important thing. Everyone desires a life without worries about what to eat and wear, where to live, how to commute, which quality of education to acquire or give to our children and so on. Knowing how to secure this well-being is therefore one of the most important skills that we need in life.
A few basics of investing are required in order to get into the journey of attaining financial well-being. They are simple to follow and no genius trait is needed. You just follow some guidelines, form an investment plan and be determined to stick to it.
The amount of money you invest is not as important as the opportunities that are open for you. You will therefore need to focus on discovering and learning how to use your opportunities in a profitable manner.
Even though no one can guarantee returns from an investment, following facts about saving and investment with an intelligent savings and investment plan will help you to gain financial security over time.
Some basics of investing
Time after time, people of even modest means invest. If you ask them what they do, they talk about the following things:
1. Make a financial plan
This includes identifying the things you want to save for: your children, a home, an education, car, medical expenses, periods of unemployment, caring for parents and so on. Arrange them in the order of importance to you. List the most important investment goals first. Determine the time frame with which you want to meet each of the goals. You can use various tools to put together your financial plan. Such tools are ubiquitous in the internet.
2. Know your current financial situation
Take an honest look at what you own and what you owe. Create a “net worth statement”. On one side write your assets, their value alongside them and calculate the total amount. On the other side do the same for your liabilities or debts. If the total value of your assets is bigger than that of your liabilities then you have a positive net worth. If liabilities have a value higher than that of assets then you have a negative net worth.
Don’t be discouraged by the negative value. Come up with a plan to achieve positive “net worth” value. This may include reducing less important expenses. Keep track of your income and expenses every month and then update the “net worth” statement every year.
3. Pay yourself first
Make arrangements with your bank to remove money from your paycheck and deposit it into your investment account. This will help you to stick to your investment plan and increase the chances of realizing your goals.
4. Understand and embrace the power of compounding
Do not get into the habit of withdrawing small earnings of your investment. If you put aside $1 per day, you will have $365 by the end of the year to invest. Now, if you put $365 into an investment account that earns 5%per year, you will have $383.25 at the end of the next year.
Do not withdraw the extra $18.25 but let you investment grow. By the end of 5 years, you will have $465.84 and by the end of 30 years your investment will have grown to $1577.50. This is the power of compounding.
Even Bill Gates follows these basics and you too can do it. Cultivating a culture of saving and investment is a sure method of increasing chances of attaining financial security.