To make money, most people will get a job. They’ll tend to work that job until the work runs out or they run out of the ability to perform it. The vast majority of workers put little aside for retirement or for investments. Some will spend just about every dollar they earn from a high salary. Others will have little left over to invest after paying for the necessities of life. Regardless, just about everyone should be able to find a little bit to invest if they live frugally. Here are some ways to invest your hard-earned money.
An Emergency Fund
If your net worth is not well into the six figures, you need an emergency fund. Setting up a fund of at least $1,000 will give you the ability to easily pay for a new washer or refrigerator if these appliances go out. It could also pay for many auto repairs that are out of the ordinary. You’ll likely not earn much from an emergency fund. In fact, it’s a good idea to leave it in a savings account or a money market account so that you can access it relatively easily. The return comes when you don’t have to take out a personal loan or pay with a credit card when an emergency hits. Those emergencies could get compound interest working against you. After saving up to $1,000, it’s a good idea to keep saving until you have three to six months available.
Pay Off Debt
Paying off debt is one of the best investments you can make. Don’t take it from me. Take it from Mark Cuban. He’s done pretty well with his money over the years. Cuban argues that paying off credit cards or other debts is the best investment people can make. Why? You’re likely to get a better return on the debt payoff than most other investments. Credit cards can have interest rates that run between 15, 20 or even 25 percent depending upon your creditworthiness. Every dollar you can pay off gets a return that’s equal to the interest rate. There’s also the added advantage that comes with having less money going out to your creditors once the bills are paid off. This is money that can get invested in other ways.
Bonds are instruments that allow governments or businesses to borrow money from investors. What’s in it for you if you invest in this way? The government or company that issues the bond promises to return your initial investment at the end of the term stated on the bond. That could be anywhere from 30 days to 30 years depending upon the particular bond. In addition to returning the money at the end of the term, bondholders also earn interest on their money. Interest rates vary, and bonds with longer terms will usually pay higher rates. This is an investment that can give you some periodic cash flow. Some bond funds pay out monthly while individual bonds will tend to pay out quarterly or semiannually.
Many investors look to precious metals as a store of value. Gold and silver can sometimes act as a hedge against inflation. In other words, gold’s price should generally hold up with inflation. There are frequently ads on TV or the Internet
that encourage investment in precious metals. Gold and silver should probably make up only a small percentage of a diversified portfolio, however. Warren Buffett, widely considered the greatest investor ever, avoids gold himself. He argues it’s an unproductive asset that does not create additional wealth. One ounce of gold will be an ounce of gold in 20 years. On the other hand, an investment in a company can pay dividends and add to a person’s wealth over time.
Stocks are small portions of companies. These are actual productive assets that can pay off for their owners. Stocks can pay off in a couple of tangible ways. First, as long as a company has solid revenue that leads to profits, it can pay out dividends. Warren Buffett’s Berkshire Hathaway loves to receive dividends from the businesses that the holding company owns, but it does not pay them out. Buffett redeploys the dividends into additional businesses instead of paying out cash. This leads to the second way that stocks can pay off. Shares are bought and sold on a market. If the business is successful, shares should be in higher demand, and this will usually lead to a higher price. Rising share prices can lead to capital gains for investors.
Another popular way to invest that’s paid off for many people over time is real estate. There are multiple options for investing in real estate. You could use a service like Gold Coast Buyers Agent PumpedOnProperty or try to find properties on your own. If you’re looking to buy a property, you can utilize leverage by taking on mortgage debt. Over time, you’ll build up equity as your tenants pay rent. After the property is paid off, the rent you receive should provide some solid cash flow for you. Another way to invest in real estate without having to actually find good tenants is through real estate investment trusts, also known as REITs. These function like stocks and can invest in residential or commercial property. Many pay out hefty dividend to investors that work much like the cash flow that comes from owning the property personally.
The final investment that can really pay dividends is self-improvement. Taking a course or getting a new certification can expand your knowledge base and your skills. Theoretically, the return on investment could be exponential as your increased marketability leads to more income. It’s important to remember that a nice portion of any extra income you earn from this investment should go into further investments so that you can increase your passive income over time.
It’s been said that you can do three things with money. You can spend it, invest it or give it away. These suggestions should give you some ideas for investing your hard-earned money. Over time, slow and steady investments can really pay off with a river of cash flow that can help you live comfortably in your golden years.