Starting your investment program

Starting an investment program requires understanding how investing differs from savings, getting ready to invest, and deciding why you want to invest. Then after you find the money to invest, you can contemplate the types of returns you might anticipate from your investments.

Investing Is More Than Saving

Savings is the accumulation of excess funds by intentionally spending less than you earn. Investing is more. Investing is taking some of the money you are saving and putting it to work so that it makes you even more money. Your goals and the time it will take to reach those goals dictate the investment strategies you follow and the investment alternatives you choose. The most common ways that people invest are by putting money into assets called securities, such as stocks, bonds, and mutual funds (often through their employersponsored retirement accounts), and by buying real estate. Stocks are shares of ownership in a corporation, and bonds represent loans to companies and governments. All of your investment assets make up your portfolio, the collection of investments assembled to meet your investment goals.

Are You Ready to Invest?
Here are signs you are ready to begin an investment program:

•  You balance your budget. If you find yourself constantly running short of cash toward the end of the month or if you make only minimum payments on your credit card balances, you need to institute budget controls so you can live within your means
•  You are able to save regularly. A good financial manager forgoes some spending to save regularly to build an emergency fund, acquire goods and services, and achieve other goals. You can’t invest unless you have some savings with which to begin.
• You use credit wisely. Pay off any high-interest debt. Pay credit card bills in full each month. Have a maximum credit limit sufficient to meet personal financial emergencies
•  You carry adequate insurance. Liability insurance protects your assets and lifestyle in the event you are sued. Health insurance is a must. Term life insurance protects the lifestyle of dependents.

Decide Why You Want to Invest
When you have reasons to invest, such as to buy a home or plan for a financially satisfying retirement, you will be more likely to consider “investments” as a high-priority category in your budget. Your investments can increase your income and help maximize your enjoyment of life. People invest for four reasons:

•  To achieve financial goals, such as a taking vacation, purchasing a new car, making a down payment on a home, financing a child’s education, or starting a business
•  To gain wealth and a feeling of financial security
•  To increase current income
• To meet retirement income needs

Where Can You Get the Money to Invest?
You must save money to have it for investing, and here are some  suggestions:

• Pay yourself first. “Pay yourself” every time you receive income by earmarking in your budget money for saving
• Save don’t spend extra funds. When unexpected money arrives, save part or all of it. Examples of extra money are a year-end employer bonus, a commission check, a salary raise, a gift of money, an inheritance, and an income tax refund. Also, when you have a surplus in a monthly budget category, save it
•  Participate in your employer’s retirement plan. When your employer offers to match your contribution to a 401(k) retirement plan, it’s free money.

• Make saving automatic. Have funds automatically transferred from your bank to a savings account as well as from your paycheck to your retirement plan.
• Make installment payments to yourself. If you make installment repayments on a debt or lease, continue to make the “payments” to your savings account after the debt has been repaid.
• Break a habit. Put aside the money you would have spent on a former habit, such as buying lottery tickets
•  Get a part-time job. Save the after-tax money earned from an extra job
•  Scrimp for one month. To succeed, cut back and question every possible expense. Knowing that this level of frugality will end after 30 days will help motivate you.

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