Money plays a very important role in the society. A huge part of human life is spent trying to educate and prepare us to become eligible for work. Labor is essential in order for us to make money. But how can we make the best of the money we earn? Is it better off simply to pay bills, spend, and buy our dream luxuries? In this article, we are going to talk about the importance of financial investing and how it is going to prepare us for a better retirement life.
Saving vs. Investing
Let us consider this example: You were able to earn your first paycheck. Half of it is spent in paying bills and other expenses, while the other half is added to your other savings amounting all in $1,000. Now that you have that much money, what are you going to do with it?
Save it. So you went in the bank and deposited your $1,000. They offered an interest rate of 2% annual percentage yield for your money. That means if your money is left untouched for a year, then the following year it would increase into $1,020, thus giving you a $20 increase. For this example, if you left it in the bank for 10 years, then your money could turn into almost $1,220. Or you could also
Invest it. Let’s say that instead of keeping it in the bank; you invested it in the stock market. You opened an account with a broker and bought 20 stocks from company ABC worth $50 each. Now this company has been steadily increasing with an annual 7% yield. In 10 years, the stocks you owned are now worth roughly $1,970. That was nearly double the money you have initially invested without having to work too hard for it!
How much is enough?
Of course, this doesn’t mean that you have to invest all your money. Investing can become very profitable if you do it long term, that means that you should not touch the money while it is invested in those stocks. Before you start investing, make sure that you have some emergency savings that are always ready for immediate use. Aside from the usual amount that you can use to cover your expenses, keep some money – typically at least 3 to 6 months’ worth of living expenses. Ideally, you should save 10% of your paycheck in the bank and invest the 15% to prepare for retirement.
How to start investing?
Investing doesn’t necessarily mean the stock market. Technically, anything that generates a return is an “investment”. The most common investments with significant returns are stocks and real estates.
Stocks may somewhat be unpredictable because of the market’s volatility. Nevertheless, people who invest for a long term (10 years and above), will most likely ride out the ups and downs of stocks.
Read more about the beginner’s guide to making money through online stock trading.
Real estates, on the other hand, are harder to achieve because of the expensive value of properties nowadays. However, putting properties for rent can provide a steady income without having to do much labor.
The key to a great investment is by starting early. Why should you choose to spend all your hard earned money on material things that you want today when you can earn a higher return that could let you satisfy the wants that you couldn’t otherwise afford? Just a bit of money management and self-discipline can give you that retirement life you dream of.
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