Before I begin I just want to express the fact I am not an expert, and laugh at the “investing experts” as in my opinion if they are “just that good” why do they need to get money for giving advice? Can’t they just make a living off investing? Anyways everything I say here will be low risk, meaning the chance of making money is much greater than the chance of losing money. However chances are it won’t be a life changing amount of money, but why complain about free money?
Before You Start
Pay off all credit card debt! The best interest rate you should expect is around 11-13%, most credit cards have 15-20% interest. Logically speaking your money is much better placed paying that debt off. If you can’t pay it off talk with your bank for a loan with a much lower interest rate; or if you are really risky and positive you can pay it off you could switch to another credit card for the 0% interest for 6-12 months. But be warned getting another card is not a wise move when you are in debt.
Do something to get yourself organized, if you don’t know your spending habits you will not know how much money is safe to allocate into investing. I personally don’t worry about it and use mint.com to do it for me! Basically you input all your bank/cc/etc information into the site and it automatically categorizes you purchases, sets up a budget and gives you nice graphs; oh and it will also tell you if there are better methods of investing as far as Checking/Credit Cards/Loans go. Yeah people say it’s risky to put all that information into 1 site, however they are fairly reputable and have been suggested by many large shows. Plus I haven’t heard a single bad thing about them, its definitely helped me in many many ways!
Avoiding Overdraft Fees with Checking Accounts
If you use a debit card often and overdraft atleast once a year, it is very wise to ask your bank what “overdraft protection” they offer. I prefer “Line of Credit” this means that the bank will create a “tab/loan”, once I overdraft and charge interest if not paid off. The other option is to have them automatically with drawl from another account(normally savings) once you overdraft, however this makes it hard to “shop around” for the best savings accounts as your checking is tied to your current one. Be smart kill the overdraft so you don’t accidentally spend 25$+ on that soda.
Saving Accounts(Also called Money Market Accounts)
These will generally get people ~2% interest, it isn’t that much but 2% is better than the nothing it is accumulating sitting in a checking account. The great thing about savings accounts is your money is never “tied” up meaning you can take it out without any fees! Any money you think you may be pulling out within a few months, put it here.
If Your Employer Supplies It
If your company has a 401k, I highly recommend putting in the maximum they will match, if you don’t need the money elsewhere. You will defiantly thank yourself when it comes to retiring. Also a Roth IRA is smart to put a small portion of your paycheck into aswell. Think of this as a snowball going down a hill, it starts out small but the longer it goes down the hill the more and more money it will be generating. These are pretty safe options and are generally used for retirement. The sooner you start your retirement fund the better, you are just giving more room for that snowball to grow!
The stock market, probably the most popular of all investing options. Basically you buy part in a company(with mutual funds you buy parts in multiple companies), if the company does well you make money, if it does bad you lose money. This is a smart option to place the money you don’t expect to need in a few years. Overtime the stock market generally will always go up, however it does go down at times and if your forced to sell at the bad time you can lose lots of cash. It is also wise to save up some money and buy “in bulk”, this minimizes all the costs associated with buying stocks, yes it can cost you some money to buy and sell stock; it’s not much but every penny counts! If you buy into a mutual fund it is generally safe within the next year you will be able to profit.
There are many types of savings bonds, they don’t give off a great amount of interest however they are better than a savings account if you are willing to tie up your money. Basically you loan money to a company for a fixed interest rate(generally 4-6%) for X years. Lets say you have a $200 bond at 5%, in 5 years you will have $250. With a bond it is important to keep record of when the “mature” as after the time fixed interest ends, it will be earning considerably less. My recommendation for bonds are if you are interested use money that you know you won’t need anytime soon and buy 1 bond every month for a year. When it comes time for a big purchase such as your kids college, a house, car, etc you will thank yourself.
What I Plan to Do
So by now you have a basic understanding and may be wondering how I am currently investing my money. Well to start off, I am currently hoping to buy a house next year which makes bonds obsolete as they generally require more time. I put about 40% into the stocks, which I’m thinking may not be the smartest choice but I need to play it aggressive if I want to move, another 40% will go into a savings account @ 2% interest. This leaves me with ~14% of the cash, I know i will spend on bills and such and I still have a safety net of 40%. When my savings account builds up, I plan to buy bonds which will most likely be used to replace household appliances or redo certain areas. However that doesn’t happen too often as I really do enjoy new toys. But just recently I really have been doing my best to throw at least half of my paycheck into investment. I can’t afford a house at what I make now but do believe with the additional money from investment that dream can be a reality soon!