Investment begins with savings. Some friends and family members seem like natural-born savers while others struggle. Regardless of which category you fall into you can still be successful with your finances.
Compound interest is the eighth wonder of the world. He who understands it earns it…he who doesn’t pays it.
Invest In Yourself
When you are starting out, your ability to learn and your ability to earn are your primary assets. You should invest in yourself by reading and learning. Surveys have shown reading to be among the favorite activities of the wealthy. Studies also show strong relationships between one’s level of education, entrepreneurship, and earnings power.
In addition to investing in yourself, you should also protect and insure yourself against disability. In finance terms, your primary asset is the present value of your discounted future earnings, so this needs to be protected.
Use Debt Wisely
Smart savers and investors use debt wisely. Typically, this means only using low-cost debt to finance long term assets that are either essential or have the potential to appreciate in value. For example, it is normal to take a mortgage in order to purchase a home. While not as attractive as a home mortgage, one may also need to finance a car in order to have transportation to work. If you are an entrepreneur, you may need to use debt in order to purchase or grow your business.
Avoid and Payoff Consumer Debt
Consumer debt, like credit card balances, carry high interest rates and should generally be avoided and paid off quickly.
Increase Your Pay
If your employer offers matching contributions in your workplace savings plan, don’t say “no thanks” instead “max out” the benefit. It’s like getting free money and a boost to your pay. Also, build your foundation by considering investments which offer regular dividends and interest.
Funding an IRA
Once you’ve maxed out your workplace savings plan, a Roth or Traditional IRA lets you save with tax-free growth or on a tax-deferred basis.
Balance Your Savings Goals
Starting out can be difficult because there are competing priorities. First, one should establish an emergency fund that will last at least three months. Freedom is knowing that you can get by without a paycheck if you have to.