The Basics of Investing
Now that we’ve covered how to develop the right frame of mind that will lead to success and how to save and budget your money lets talk about investing. Hopefully you have implemented a good budget and keep track of your expenses as well as your income sources. If you only have one source of income right now that’s OK. Investing is the secret driver to financial success.
It doesn’t matter how many jobs you have or how much you make a year. You can’t retire on working wages alone. This is especially true if you are making minimum wage or sub par wages or spending too much on non essentials. The way to financial freedom is to set up a system that pays you when you’re not working. What I’m talking about is residual or passive income. The best way to achieve this is to put money to work for you with investments.
There are several types of investments or investment vehicles:
- Real Estate
- Personal Side Ventures
I’m not going to get too much into detail with this post. This is just a basic rundown of the different kinds of investments there are so you can be aware of them. If you want further explanation or in-depth view stay tuned in for my upcoming posts.
The main concept you must understand is that stocks are parts of a business. When you are buying stock or a share, you are buying a piece of a business. Many people trade stocks like they do with their iphones but I believe the best way to invest in Stocks is to take ownership. Think of yourself as a business owner instead of a trader.
Stocks can offer extremely high returns but be wary. If you do not know what you are doing you can lose out on a lot as well. Stocks tend to fluctuate in value rapidly but for the long term investor it can be worth your while. Please make sure you do your due diligence in researching on your own before you dive into investing in Stocks.
In any case, stocks can be very useful and a powerful weapon in your financial arsenal for the tax advantages as well as the effect of compound interest.
Bonds are a bit different from Stocks in that they don’t represent a share of a business. Instead, bonds are debt investments. A bond is basically an I.O.U. in which you give or lend money to a city, state or country. In exchange for lending the money the entity agrees to pay a certain interest rate to you.The interest rate is basically a specific payout of your principal balance. Bonds are considered safer investments than stocks because the principal is preserved and you get a nice interest payout typically every six months.
To go with an example, say you bought a bond with a principal of $1,000. Now, lets say the bond has a interest rate of 3%, what that means is you will receive $30 a year or $15 every six months for the duration of the bond until the maturity date. This leads to the next point, the maturity date. The maturity date is basically the life of the bond. Bonds can range in time durations from 1 to 30 years or longer. Once the bond reaches its maturity date the issurer of the bond will repay you the principal amount.
Investing in Real Estate
Now onto the next subject, ready?
Most people have probably heard stories of the succeses real estate investing. In fact, real estate is probably what most think of when they hear of people making investments. Well, real estate is just another thing to invest in!
But what most people are not aware of is the scope of real estate. To say your an investor in Real Estate is not specific enough. There are lots of ways to invest in real estate. Some of the more common ways to invest are flipping houses, owning rental properties or even owning reits.
Flipping houses is a far more tedious and laborious task as you have to buy a property for a good price, renovate it, a lot of times this means hiring contractors to fix up the property so you can resell the property later for a higher price than you paid. Keep in mind though that this way of investing requires a lot of time and money. You can expect most flips to take a few months and if your lucky, several weeks if you hire a lot of labor. However, this can be lucrative if you have the money and know the demographics well.
The other is owning rental property. This one is pretty self explanatory, you buy a property, whether that be a home or apartment building. Then you would rent it out to a person interested in the property. Just make sure that whatever rent you charge them is more than enough to cover your mortgage as well as basic repairs as they arise. Also be sure you know the area well because you want to be able to find an area with high occupancy rates. If not, you could buy a property only to end up paying the property taxes and upkeep, unable to find someone to rent to.
The third is more simpler and can be used by anybody looking into real estate. If you are short on money or don’t have the time to find and renovate houses reits could be your solution.
REIT stands for real estate investment trust. A real estate investment trust is a company that buys real estate assets things like commercial or apartment buildings and is listed on the public stock exchanges for people to buy “shares”. I put quotation marks because for reits they are called units. But reits are bought and sold just like publicly traded stock on the exchanges.
So if you are interested in owning real estate but don’t have the large funds or time to do so reits could be right up your alley. A good way to think of reits is a high yielding stock. Reits tend to have high dividend yeilds so it can become a good source of income.
Personal Side Ventures
The last way to make money is hustling on the side. Investing doesn’t just have to be about stocks, bonds or other financial securities. You could be investing your time into a side project that has the potential to generate money for you. In fact, if you are passionate about a particular subject you could take that idea and form a viable business plan and start earning another stream of income for yourself.
There are a lot of ways to make money beside your main job. You could sell something on the side or online. If your passionate and knowledgeable about a particular subject you could start a blog and monetize it to generate money via ads or affiliate links. Or you could even start a small business with a friend whom you trust and with the added benefit of not going it alone, you could pull resources together and have the business flourish to enable you to quit your day job if you wanted to do so.
There are many ways to make money through investments. If fact, the scope is so large I don’t know why more people don’t do it. There are lots of ways to make money outside your main job and no one is going to look after your well being more so than yourself. This is your life and you deserve financial freedom to do what you want in this life. Start today, make a plan and start having your money generate money for you!