One of the best ways to create financial stability is to create an effective investment portfolio.
While this may seem obvious, creating the right investment portfolio for you may not be as easy as it seems.
The reality of investing is actually easy – the biggest road block is generally YOU.
There are always excuses which prevent people in actually getting started.
- I’ll start after….whatever excuse you want to put here
- I don’t know what to invest in
- How do I pick the right investments?
- Financial planners are too expensive (do you really need a financial planner?)
- I don’t have enough money saved up to invest yet
- I’m a low income earner and can’t afford to invest
The list can go on and on. People don’t understand that investing can be as easy as setting up a term deposit or high interest savings account and making small monthly deposits to it over a set period. You don’t need professional help for this.
Look at this for example:
If you’re a smoker who smokes a pack of cigarettes a week, you’re spending roughly $1040 a year at $20 a pack. If you quit smoking and put that same money into a high interest saving account or term deposit you can create a substantial savings.
If instead of purchasing cigarettes each week, you deposited that same money ($20) into a savings account that averaged 6% you could receive the following:
10 years = $14,203 | 15 years = $25,204 | 20 years = $40,044 | 25 years = $60,059
That is a great deal of money that can be earned by simply exchanging a bad habit into an investment.
Use this compound interest calculator to see how you can even improve upon this by increasing the monthly deposits, interest rate, length of investment and starting with a decent initial deposit.
*Certain term deposits are also tax free after 10 years.
This is just one simple example of an investment option combined with a positive lifestyle change. To really take control of your financial future you need to take action and just do it. Some investments will make more than others and the amount you can earn is really up to your imagination and desire.
Below is information on how to start to prepare in becoming a investor.
Set Financial Goals
The first step for any financial plan is to set some basic short-term, medium-term and long-term goals. Think about where you would like to be in 3, 5, 10, 15 and 20 years from now. Do you want to purchase a new car, buy a home, pay for your kid’s college education, start your own business or retire early? Make a list of all of your goals and determine how much money you would need to meet that goal. It will be impossible to choose the right type of investments if you do not have a basic understanding of what your future goals are.
It is also important to know how much money you have available to invest. Take a look at all of your assets including your income and bank accounts and compare it against your expenses and any outstanding debt. Be sure to leave yourself some emergency money in a savings account to protect you in case you have an unexpected emergency or lose your job. Keep in mind that you may not have instant access to some of your investment money and early withdrawal of funds could cause you to pay extra in penalties. You certainly do not want to invest more money that you can comfortably afford to spend.
Develop an Investment Plan
Once you have your future financial goals in place and know how much money you have available, you can start to create an investment plan. A quick look at your financial goals will let you know how much money you should invest in quick turnaround options and how much you should place in more long-term investments. This planning will help to ensure the necessary fund become available, as you are ready to meet certain financial goals. For example, if you want to purchase a new car in two year, you will want to invest the money for a car in a short term investment option that will provide the necessary funds when you need them.
Choose Your Investment Wisely
There are so many different investment options available that it may be difficult to determine which ones to put your money in. It is vital that you take the time to research each investment option before putting your money in it. This will help to avoid wasting money on fraudulent investments. It is a good idea to sit down with a financial counselor if you use one on a regular basis and have him/her explain your options to you. The counselor can explain the risk factor involved with each investment option and help you determine if the risks outweighs the income potential or if the risks are too great.
Popular investment options include:
Shares (blue chip companies with a long-term hold position)
Savings (term deposits, fixed income securities)
Superannuation (Most tax efficient but can’t access until retirement)
Commodities (i.e. gold, silver)
The worst thing that you can do is to make a financial investment and then just forget about it. Even if you think it is a sound investment, you must keep track of it and make sure it is providing the type or return on investment you want. Even the best investment option can turn out to lose money for you, if your are not careful.
Close monitoring of all your investments will help you pull out of a bad investment before you lose any more money. It can also help you know if you need to invest more money, if you have adequate amount investments to meet your goals.
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