Many youngsters and recent graduates wonder why they should invest their money now if they know they can make much more money in years to come. If you are among one of them, continue reading this article. If your thought process is not along those lines, it could still be a fun and interesting reading to see the other side of the world.
Ideal income scenario does not exist
In an ideal life scenario your salary would increase every year and hence you will keep earning more money than you can spend living the life you like. Hence you would not need money from any other source of income. However as they say, life is what happens to you when you are busy making other plans. This world is not an ideal place to live. It is a survival quest in which the fittest is going to win and lead a happy life. You never really know what future has in store for you. Many catastrophic events can happen during our lifetime like job loss, recession (pay cuts, bonus cuts) or divorce or anything else which affects income. So better be safe than sorry.
Unforeseen needs come up
There are also cases of unforeseen circumstances that require immediate access to money. These can range from health related problems, house / car repair needs or any other kind of rough circumstances which you did not plan for. Personal finance has to be planned taking into account such scenarios. Unfortunately just depending on direct income will not get you through such cases and you will see yourself begin sucked into debt in no time.
How to avoid such financial crisis
If you happen to run into any of those setback scenarios of life, for financial survival you will have to depend on new / alternate sources of income to pay bills. If you are lucky, you will get some money through unemployment or Social Security program. On the other hand at this time if you had a supplemental income generated through another source such as some sort of investment, you will be able to pull through the tough times easily.
People with different personality types handle situations differently. Some people are relatively stronger and are able to rebuild themselves as far as finance and self confidence goes. Many of us have a hard time dealing with such events. Again supplemental income comes handy to keep you debt free.
It is recommended that every person should invest at least 20% of his/her salary on average. Now there are different strategies for investing. This article describes different kinds of investments possible: Investment Types Definitions. Let me explain the very high level categorization of investment types that are must for your portfolio:
1. Liquid Cash investments: Mostly in the form of savings accounts or money market accounts. Limited returns but can provide immediate help in any kind of emergencies such as health related.
2. Long Term investments: These are considered investments in property or gold which have a tendency of appreciating over time. These investment are more to make your post retirement life secure. 401K investments take an important part in such investments.
3. High risk high reward investments: Return is always proportional to the amount of risk you are willing to take. Stock market investments are usually considered high return. A portion of your savings should also go towards such investments. As you grow older these should move more towards balanced portfolios of mutual fund investments. You will need stock brokerage firm to be able to do any stock trading. This article describes how online brokerage firms operate: Stock Broker 101: Introduction
Your compare stock brokers can give you solid advice on how to maximize return on number 1. Your property dealer can give a lot of guidance on No 2. For No. 3, you need to choose a brokerage firm with utmost care. Click Stock Broker Selection Guide. How to choose a stock Broker to learn more about brokerage firms & how to compare stock brokers.
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