Matthew Gates 19m 4,817 #invest
The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
Investing: Saving Money Now For Later
I am not a broker, banker, or a professional financial adviser. I am a person who thinks about the future, understands money and retirement, has made some good investments and some bad investments, and is simply offering advice.
By reading this, you do not hold me responsible for any financial losses you may incur by following this advice. I offer this advice with good intentions on educating and delivering knowledge to you about your financial situation in regards to retirement.
You may or may not agree with me on some of this information, but I wrote this article to inspire, encourage, and influence others to make their own financial decisions in terms of saving money for their future.
When it comes to saving money, the majority of people actually have a lot of trouble doing it, and usually find themselves one paycheck away from being broke. If they were to miss the next paycheck, they would be unable to pay their bills and possibly incur late fees and other unforeseen penalties. If something went wrong, such as their car breaking down, or receiving a ticket from a police officer, they would be unable to pay the costs of that unwanted event because their next paycheck would have to be used to pay their most important bills.
Whether it is to satisfy the need for instant gratification of wanting something now, rent is due, other bills need to be paid, or children and family become the priority, there just seems to be no stop or end to everyone and everything becoming priority and money disappearing out of the wallet and bank account. Most people barely make it from paycheck to paycheck, so there may be thoughts of saving money, but it never actually becomes a reality.
We, as human beings, cannot imagine ourselves as being old. When we are children, the thought of being 20 is far away, just as when we are 20, the thought of being 30 is far away, 40 is far away, 50, 60, 65, 75, and even 80 is so far away. While a whole year is 365 days, 12 months, 52 weeks a year, as you get older, you realize how fast time flies, and before you know it, you are turning 30, 40, and even 50 years old, and soon, you will come to a point in your life where you will want to retire and no longer work. What will you do for money then?
The ages of 62, 65, and 67 are the official ages at which you can retire from and collect your benefits. The biggest excuse that people give for not saving money is that this age seems so far away, and one could die tomorrow and not have had the opportunity to collect at all, saving for nothing, so why not spend all the money now and enjoy life? There is some truth to this, but the original system of social security was not set up with the idea that people had a sense of self-entitlement to government money because they worked for so many years, but to help them with their living expenses during retirement. It was actually set up with the intention that you would die before you had a chance to collect. Why would you not want to work now, while still finding ways to enjoy your life, while you are young, and then when you are at the age of retirement, enjoy life, without having to worry about work?
How much did you really want in your life that you did not get the opportunity to save money for your retirement because you were too busy buying things? If you had a house fire tomorrow that burned your house to the ground, with all your belongings inside, what things would you grab that are important enough for you want to have them when you reach the age of 62, 65, or 67. I bet there are not too many things you would actually save, except maybe your children, and a few sentimental items. Everything else is dispensable. Why isn’t your future self one of those things that has sentimental value?
We cannot see ourselves as dying or being sick and in bad health, so why is it that we don’t put away money to take care of ourselves for the future? Do we think we are going to die before we hit the age of retirement? If you were fortunate enough to meet your grandparents, you probably don’t even know what they did for work, because they were already retired, and somehow always managed to give you a few bucks for your birthday and holidays, never once thinking about where that money ever came from. Lucky for them and lucky for you that they were able to retire comfortably and still give you some charity each year. For some other people, if your grandparents passed away, you probably even managed to get a trust or inheritance.
If you knew then what you know now, what advice would you give yourself? What would happen if your older self met your younger self, what would advice would you give your younger self? What situation would your older self be in because you did or didn’t do something? If your older self met your younger self, as you are reading this article, what would that older self say to you right now, at this moment, in regards to your financial situation?
The reality for most people is that if they stop working, they stop receiving a paycheck, and there is no income coming in at all, and if they cannot pay their bills or rent, they are not paying for the services they use, and therefore, those services are likely to denied to them because they can no longer pay the companies that supply them. Worse yet, people are living longer, much longer than expected, there are fewer people in the workforce and more people depending on the social security system and welfare, which are being depleted very quickly, stressing the entire system, and will eventually cause it to collapse.
The point is that more people than not, have absolutely no plans for retirement, have no idea where the money is going to come from after they stop working, and believe that “the system” will take care of them, even though there may not be a system by the time they are ready to retire. While not necessarily assuming the money will run out completely, the benefits may be somewhat stripped or lessened by the time any generation born after the 1970s or 1980s retires.
Instead of relying on the United States government, a system of officials who pretend as if there is no national debt, and the money is unlimited, the truth for Americans as individuals is, their money is not unlimited, and not paying debt back or not having any money at all can lead to some seriously complicated living issues and situations, especially when one is not working or is retired.
Walk into any retail store where elder people are working and ask them why they are still working, and you may get some great answers, such as someone just looking to make a few extra bucks every month, or you might find worse situations, as someone never saving a dime in their life, and now they are stuck working until they die. Why is it that no one talks about these types of situations? It is not something anyone learns in high school or college.
When it comes to education about money and finances in the United States, the American population is highly uneducated and highly at risk for making bad financial decisions that are not only bad for the individual who made those poor decisions, but for the American taxpayers who pay into the system, and have to fit the bill for the mistakes of the masses who never knew any better.
Imagine a world, where not only would everyone have to pay into the social security system, but also opt 10% of their annual salary into an interest-free retirement savings fund. This is the amount of money that would go into a retirement savings each year, and over a lifetime, if a person worked from 18 to 67, and depending on what someone earned:
|Salary||Yearly Savings||Lifetime Savings|
How would you like to retire with a half a million dollars in your Savings account? This is a fairly easy chart that anyone can understand, considering its only 10% of a salary. The math is quite simple straightforward logic with no hidden equations or fees, yet how many people actually think about saving money this way?
If companies automatically put away this 10% for people without them seeing it, or if people consciously put away this amount for themselves each year, into the stock market or a bank account, than a person who began working at 18 years old, had an average salary over their lifetime of about $50,000 and retired at 67 years old, which is the official age of retirement, they would have worked and saved money for 49 years, resulting in a savings of $245,000, give or take a few thousand dollars, saved for retirement, not counting social security from the government.
This all sounds too good, but the majority of people are not doing it, with plenty of excuses of just not being able to save. Lets try a few numbers that might be more realistic.
We will assume that the working age was started at 18 and retirement is at 67. This assumes that the number of years worked is 49. Lets try putting away these amounts, with our minimum amount being $5 per month and our maximum amount being $300 per month. The amount put away is assumed to be strict, meaning it was done every month over a lifetime without missing a single month.
If you have not put away these amounts, you can start at any time, at any amount you want, so long as your at-the-moment living bills are paid. All you have to do is calculate how many months behind you are, and begin to catch up and pay your retired self.
|Amount Saved Per Month||Amount Saved Over Lifetime|
Imagine retiring and having $58,800 or even $100,000 in your bank account. How would you feel if you looked in your bank account and saw that amount in there now? Imagine how you are going to feel when you do actually see that number in your bank account. What would you do with it?
Putting away a small amount now might be something that your future self would really appreciate. It is only recommended that you put away more than $100 if you can afford to pay your older self.
Imagine putting away money right now and being transported into the future, but you would appear as your older self once you transported. You have been investing and putting away money here and there, when you could. Your older self can now have access to that money, and you put enough away so you no longer have to work, but could enjoy your life in the moment, without having to go a job in order to make money. Does that sound like the future you want for yourself or do you want the one where you still have to continue going to work everyday, even as your older self?
Before putting away any money, you should:
- Figure out your current finances, financial situation, and bills and ensure you have a proper budget
- Make sure you have enough to pay your bills
- Make sure you have enough money to eat
- Make sure you have enough money to get to work
- Make sure you have an emergency fund of at least 6 months in case you:
- become unemployed
- are temporarily sick
- are temporarily disabled
- need to fix your means of transportation
- become hospitalized
What Is Investing
In terms of the stock market, which is what is being written about here, investing is buying, lending, or owning a portion, shares, or properties of a business. You are an investor who owns part of the company and if the company makes money, you make money. However, you also have the risk of losing money as well, if the company loses money.
Imagine owning a business and asking someone to lend you a thousand dollars with the promise that will pay that person at 3% each year on the thousand dollars they originally lent you for however long your company continues to profit. You make them sign a contract: If you make money, you will give them a portion of your profits, also known as a dividend. However, if you lose money, they risk losing money as well.
After a year, you have made some profit for your business and now you must pay the person who lent you money to help you run your business. Depending on your agreement or how many shares of your company they own, you will continue to give them some of the profits that your company makes. Once they take their thousand dollars back, you are no longer obligated to pay them a dividend.
Unfortunately, if your company loses money and you find that your business is not making as much profit as you originally expected, you are unable to actually pay the investor any money at all, and they end up losing money.
This is the very basic idea of investing in a company. There are a variety of different investing methods including very safe, which is recommended for people who are looking to invest for a lifetime, in which risk to their money is very minimal, to highly risky, which is for people who are looking to make a lot of money faster, if the companies profit, but the risk to their money is very high, if the companies lose money.
Investing money into a company or a fund is trusting or believing that the company will do well and make you money. It is a symbiotic mutual relationship: You are buying shares of the company and giving them money, and they are taking your money to build up their company, and making a profit on the business. If they profit, they pay you a small percentage of what they made over the quarter or the year, and this is how investing works.
For more information on investing, visit: http://www.investopedia.com/
Why You Should Invest
If you are like any human being, you probably want things in life, and you want to have these things in your possession. When you are a child, your parents usually obtain these things and give them to you, and technically, they are yours. As you grow older, your parents might stop getting you the things you want, and inform you that you must get a job and work for the money that will provide you with the opportunity to buy the things you want.
From your childhood until adulthood, you will want and need things throughout your life, but as you reach certain ages, you begin to realize that some things are more important than others. As a young adult, the best car or technology might be what you are after, but as you reach your mid-adulthood, you may begin to think about buying a house, raising a family, and ensuring that you and your family are happy.
Once you reach a certain age, you may begin to start thinking about your retirement and what life will be like if you stop working. Where exactly is the money going to come from? If you are a young adult now, you most likely have discovered that on the days you take off from work, your paycheck certainly shows it, because you do not get paid for the days you take off. When you are not working, you make absolutely no money.
This is a huge worry once you retire and are no longer working. Where exactly is the money going to come from? Social Security, trust funds, or investments might take over your financial situation if you are not working, if you are eligible for a certain amount of social security. As for your inheritance or trust fund, you might be entitled to something, if there is anything.
Finally, if you made any investments over the years, you could claim those, and hopefully you made enough on those investments you made earlier in your life.If you made investments that you will now claim as you retire, you will no longer have any money invested, if you choose to take it all out, and live off of it, and you will be able to live on the money that you made from your investments.
You could also live half on your money and half on your investments, continuing to keep half of your money in your investments and living off of that, if you have made enough and continue to make a nice profit off your original investments.
The reason to invest your money into companies i.e. the stock market is to make money on your money and hopefully have your money make profit on itself, so that when it comes time to retire, you actually have peace of mind that you can retire without having to worry about money.
You would think that the number one fear of most human beings is death, but at some point, we all come to the understanding that we all die, and death, while a concern, becomes less of a priority. The major concern that we worry about? Financial situation in retirement. We fear not having money when we stop working.
If you do things right and invest early, help your children to invest, and make good decisions on your investments, your financial situation in retirement will be the last thing you concern about, but you must make the effort to invest money before you retire, and allow time for it to grow and make money on itself.
Remember this: Money makes money.
The Risks of Investing
With anything involving money, there are always risks when investing. No money in the stock market or investing is guaranteed. If you lose money in the stock market, you lose that money for good, never to be found again, and no government or bank will have any sympathy for you. If the company you invested in goes bankrupt, loses profit, or just goes under and no longer exists, you have lost your money, and can never get it back.
Remember that you must pay taxes on your investments and you must do your research on how much money is actually made after taxes. You might have held your money up for several years, only to have to pay all the interest you made to the government, and just receiving your original money investment when you claim it, which would hardly make the investment worth it.
As I wrote earlier: Make sure you have an emergency fund and be willing to take the risks of losing money, unless you opt for a safer alternative, such as CDs (Certificate of Deposit) or Bonds, or savings accounts that pay interest, in which the government, banks, or companies agree to borrow money from you and pay you interest on what they borrowed from you.
You must do your research on every method of investment you make. For example, a CD may pay 1% interest if you invest $10,000 for 10 years, which will only give you about $1,000, not including taxes, after your CD matures. During these 10 years, your CD is “locked in”. Until maturity, you are not allowed at all to touch any of the money, nor will you receive anything from the CD until it matures or until it is “unlocked”. This kind of investment is definitely not worth it.
An investment of 5% of $10,000 after 10 years would leave you with over $6,000 of money you made on your original $10,000 investment, which would definitely be worth it, if CDs actually paid that much, but none actually pay that amount of interest anymore, which makes none of them worth investing in.
A bond might be a better consideration. A bond works much the same way a CD works, but you are given a percentage of interest each year, and your original contribution back on the day that it matures, which could be 10 or 20 years from today. For example, a $1000 bond at 7% interest rate that has a $70 coupon will pay $35 every 6 months. With certain types of bonds, you may or may not be “locked in” and can sell them after a year or so. There are different types of discounts, coupons, and interest paid out on bonds, and you will have to do your research on the specific bond you are investing in.
Think of investing as taking a bet on the market and value of a company. If it does well, you will win money, but if it does not do good, you could end up losing money. Investing can be as dangerous as gambling, and just as addicting. It can be very addicting to buy stocks of a company, buy, sell, trade, and not keep track of your finances.
You might receive tips or track the patterns of the stock market and invest based on your emotions. When it comes to investing, logic and research is highly recommended. You can lose money overnight or gain it back in minutes. You must invest cautiously and wisely. Think of the money you invest with as money you can afford to lose. If you lose it, you should not be upset, as this money was your money that you gambled. If you have gambling tendencies, it may be best for you to consult a professional broker to assist you with stocks, trades, and investments.
Please invest responsibly.
How Much To Invest
No matter how old you are or how little money you have, there are always opportunities to invest money. It is recommended that you have at least $20 to $100 to begin your journey into the stock market, so you can buy shares of a company and make some money on your money. It depends on how much you want to make and the amount of money you are willing to part with for now.
Lets say you bought one share of a company for $1 when the company was trading at a dollar and five years later, the company miraculously became one of the highest rated companies in the world, and was trading at $300. You technically just made $300 on your original dollar investment. If you had put $100 into the original investment, you would have made $30,000 after five years; if you had put $1,000 into the original investment, you would have made $300,000 after five years.
It is all a game of chance and opportunity. You are making bids on companies and how well they will do in the stock market. You will make some great decisions and you will make some decisions that set you back. There are some people who make amazing decisions and get rich instantly, but for most people, the stock market is not so easy, and the best most people can hope for is to make enough solid investments to retire comfortably.
The choice is up to you on how much you want to invest in a specific company, but it is advised that you put enough money into the market to make money on your money for years to come. While a single dollar could have the potential opportunity to certainly make you money, more money will make more money, whereas less money will still make you money, but not as much money as you probably would have hoped. Consider putting enough money aside from each paycheck and saving up to make some solid investments.
Where You Should Invest
Now that we have established what investing is, why you should invest, and that you should think about your future and begin investing now in order to take care of your future self, we can now talk about where you should invest your money and how much money you should technically invest.
As you have seen in the table charts above, if you put away a certain amount money a month, without ever touching it, you have the potential to save quite a few dollars for retirement. This does not count the interest you would have earned, had you put it into a high-yield interest savings account or into the stock market or another area.
While a bank might seem like the the best and safest place to invest your money, the interest rate alone states otherwise, often less than .05% or around 0.01% (about a penny) and considering the fees that banks charge, they are not worth investing in or storing your money. No banks do anyone favors anymore, and in fact, it is the general population that does the favor for banks by continuing to pay the fees and store their money in banks.
This is not to say that you should not store your money in a bank, but it would be far better to store your money in a bank that does not charge a monthly or yearly fee, and does not require you to have direct deposit. Not only do they charge you a monthly fee and require you to have direct deposit, but they do not reimburse you for using ATMs and other bank machines that are not their own. Every possible way they can steal more money from people, they will do so.
By continuing to allow banks to get away with this, people are encouraging these banks to continue to operate and steal from the public the way they do. You allow your bank to borrow money from you. If they are charging you money to hold your money, charging you money for not having money, charging you money for using your money, than they are not the bank for you and you should reconsider who you want handling your money. They should technically be paying you for keeping your money with them.
Storing money in a “free” (fee-free) bank to pay your bills and have an emergency deposit or vacation fund is perfectly acceptable and recommended, but extra money, if there is any, could be invested elsewhere. There are dozens of websites that are officially online banks that are FDIC secured, or savings and trading organizations, that offer the opportunity to save money, with interest, and without any fees. Since these banks are online, they usually reimburse you for using ATM machines, cash-back systems, and debit card usage. Why would you not take advantage of these opportunities if they are offered to you for free?
Several of these websites include Schwab.com, Fidelity.com, ETrade.com, Forex.com, Scottrade.com, USAA.com, FirstTrade.com, JohnHancock.com, and CapitalOne.com. There are plenty of others in the world, but these are some of the major banks that will treat you better than your current bank. I recommend that you read the advantages and disadvantages, along with reviews of each of these banks before deciding on the bank you want to call home. All of them offer both a bank account and a brokerage account, which allows for you to have access to your money and the market at the same time.
Aside from the different banks you could invest in, there are different types of investing methods, including stocks, penny stocks, ETFs, mutual funds, bonds, bond funds, bond ETFs, CDs, fixed income securities, money markets, 401k, Roth IRA, and more. All of these investment methods come with their own pros and cons.
This article will not cover these specific investment methods, as you find out all the technical information about investing on Investopedia.com, but I leave you with this advice about investing:
- Put your eggs in more than one basket.
- Plant the seeds in more than one place and watch them grow.
- Be patient.
- Unless you are a professional investor, do not watch the stock market everyday or you will drive yourself insane.
- Don’t be afraid to take some risks; invest assertively and aggressively.
- Don’t be afraid to not take risks; invest conservatively and moderately.
- Don’t be afraid to experiment, but do your research before you invest in anything.
- Set it and forget it.
- Invest as early as you can; but know that it is never too late to start investing.
- Don’t worry about investing a small amount of money, any amount will do.
- Make sure your current bills are paid and that you have an emergency fund of at least 3 to 6 months.
- Accept that you will lose money.
- Accept that the stock market is unpredictable and can look and feel like your money went on a roller coaster ride.
- Accept that there are no guarantees for a financial safety net in the stock market.
- Remember that investing can be as addicting as gambling, so invest cautiously and wisely.