Show Money You Are The Boss
Show Money You Are The Boss
Investing is nothing like a poker game unless you do it like an idiot. Point-blank, investing is neither scary nor difficult. You have to know a few basic rules and get fluent in a few strategies, but it’s something everyone can master — even with just a few extra dollars a month. One of the most important parts of understanding investments is to start young, it’s easy to feel like the “making your money work” thing only applies to older people with a lot of money, but the reality is, it does not. Being young is like having a secret cheat code to increase your wealth because your money has a much longer time to grow.
Giving yourself the right knowledge and understanding of the basic underlying principles of investing is half the battle won. Most of us avoid thinking about our money in terms of investment because it feels confusing or unnecessarily complicated. We often think of investments as an extremely active process, something that needs to be like a full-time job to truly master it. But there are many ways to go about it, and because many of them are passive, simple to set up, and require very little money, an entire world opens up to you. You don’t have to be some money manager holding stacks of dollar bills to invest. Even paying down your debt is an investment in your financial future.
It’s important that you start looking at your money like you are the boss: it shouldn’t just sit there in some boring account, doing nothing (except for your emergency fund, which is boring but absolutely necessary). Your money should be actively working and always doing something that is to your benefit and always reaching toward a goal on its own. The best part is, doing this doesn’t even require a dangerous, risky, and complex strategy that’s way too complicated for you to understand. But you have to know where to start.
One thing that is essential when it comes to investment, is that a dollar in your budget is not necessarily just a dollar. Yes, a dollar could be something you choose to spend on a meal or a shirt, or a cup of coffee, but if and when we have the opportunity, investing makes that one dollar worth potentially much much more. To not take advantage of, at the very least, a basic retirement account and the interest over time we stand to gain from it is to shoot ourselves in the foot (or bank account)
But this is not going to make you a millionaire by the time you are fifty if you put a penny in some account every day, but we all have the opportunity to accrue wealth if we start investing young. We have all the opportunity to be one of those people with a real nest egg, a real investment plan, and a real inheritance to pass down. And figuring out the value of an investment is a lot easier than you think.
In fact, there is a simple, straightforward rule that allows you to quickly calculate compound interest, which will allow you to visualize the long-term potential of an investment, see how much fees and charges might really amount to over the years, and decide among different options. Master the rule of 72 and you’ll quickly become a wizard at analyzing a lot of these tricky numbers.
Rule of 72: A simple rule to determine how long an investment will take to double. Simply divide the number 72 by your compound annual interest rate. (remember, a rate of 5 percent would be expressed as 5, not 0.05)
When you are getting started with making your money work, you will probably need some help. You may already be able to speak some of the investing languages, but in order to become fluent, you will need to find a financial adviser. When you’re starting from zero, there are going to be so many things that you don’t even know you don’t know, and chances will be high that even simple terms will be outside your realm of knowledge.
As for me, when I began, I didn’t even know what a stock was, to give some sense of where I was then. Finding someone you trust to help you learn the basics, as well as give you some valuable advice, is of utmost importance. Even all the information available to you on good old Google, if you don’t know the questions you should be asking, it can be tough to make headway. Now, this financial adviser could be anyone from a professional money manager to a trustworthy member of your own family who has experience investing. Ideally, you want to go in with a least some simple goals in mind and have done enough basic research so that you can start a conversation, which is the first step toward meeting those goals.
One of the first pieces of financial advice you should seek, for those who are working, will often be your own HR person, who is there to help you learn about retirement accounts, which should be your first stop when it comes to investing. Retirement accounts are one of the safest, easiest-to-start type of investments, requiring little involvement on your part, and whether you plan to have a complex portfolio beyond that, or simply stop with your most basic 401K, a retirement account that is a non-negotiable. And that goes double when your employer is matching your contributions. All of the basic types of retirement accounts — like 401K, IRAs, or IRAs are easily available and quite easy to set up. And depending on the account type, they can come with huge benefits.
Remember this: Waiting until you're rich to start caring about your money is like waiting until you're married to start dating.
That’s all for now, my friends. See you all in my next article.
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