Most of us were taught while growing up that you can earn an income only by getting a job and working. And so that’s what most of us do. But of course, you and I both know that there’s a limit to how much we can work and how much money we make out of it. Add to that the fact that having a bunch of money is no fun if we don’t have the leisure time to enjoy it.
Don’t you wish you could have more money without having to exert a lot more effort? How would you like to retire early and spend your remaining years doing the things you love and enjoy, provided of course that God in his mercy and grace will let you live beyond 60 or 65?
The good news is, there is a simple way to accomplish this and that is by growing your money and making it work for you. Since you cannot possibly create a duplicate of yourself to increase your working time, you can just send an extension of yourself, that is, your money, to work. So while you are working hard for your boss, spending quality time with your family and loved ones, sleeping and resting or socializing with friends, you are growing your money elsewhere and making it work harder for you.
Simply put, growing your money and making it work for you maximizes your earning potential whether or not you get a raise, decide to work extra hours, or look for a higher-paying job. But what is the best way to grow your money? You grow your money by investing it to earn a good return.
What is Investing and How is it Different from Saving?
Although the words saving and investing are often used interchangeably, they mean entirely different things. They have different purposes and play different roles in your financial strategy.
Saving involves the protection and preservation of money from loss; it is the process of putting money gradually aside in extremely safe securities of accounts for emergency purposes or future use. People generally save for a particular goal, like paying for a car, a deposit on a house or any emergencies that might come up.
Many parents save money to pay for their kids’ educational expenses or for a family vacation. Although saving money can help you achieve your desired outcome, your saved money will not be growing your wealth.
Investing, on the other hand, means to make a long term commitment of putting money away and letting it grow to a larger sum. Investing is the process of using some of your money to buy an asset that you think has a good probability of generating a safe and acceptable return over time.
Legendary investor, business magnate and philanthropist Warren Buffet defines investing as “the process of laying out money now to receive more money in the future.”
Types of Investment
There are many types of investments and investment styles you can choose from. You can invest in stocks, bonds, mutual funds, ETFs, gold, real estate; you can even start your own business. The point is that no matter what type of investment you choose, the goal is to put your money to work so it will grow and earn you an additional profit.
When you buy stocks (or equities), you become part-owner of the company or business which entitles you to vote at shareholders’ meetings; you are also given the opportunity to participate in the company’s success via increases in the stock’s price and dividends that the company might declare.
Bonds are grouped under the general category called “fixed-income” securities which are debt instruments issued by corporations and the government. When you purchase a bond, you are lending out your money to a company or government in exchange for periodic interest payments plus the return of the amount you lent out.
Just like stocks, bonds can be purchased as new offerings or on the secondary market. A bond’s value can rise and fall based on a number of factors but they move inversely with the direction of interest rates.
3. Mutual Funds
A mutual fund is a pooled investment vehicle professionally managed by an investment manager that allows investors to have their money invested in stocks, bonds, money market instruments and other assets. When you buy a mutual fund, you are pooling your money with a number of other investors and you pay a professional manager to select specific securities for you.
The primary advantage of a mutual fund is that you can invest your money without having to worry about what stocks or bonds to buy. In other words, you can invest without needing the time or the experience in choosing investments. Mutual funds also allow both large and small investors to invest and achieve a level of instant diversification.
Exchange Traded Funds are like mutual funds in many respects but unlike mutual funds, an ETF trades like a common stock on the stock exchange during the trading day so they experience price changes throughout the day as they are bought and sold. ETFs also have typically higher daily liquidity and lower fees than mutual fund shares, making them an attractive alternative for individual investors.
5. Alternative Investments
Aside from stocks, bonds, mutual funds and ETFs, there are many other ways to invest in order to grow your money such as real estate, hedge funds, gold and private equity. But these often have restrictions in terms of how investors can have access to their money.
Some people think that investing is gambling but it’s not. While gambling is putting your money at risk by betting on an uncertain outcome with the hope of winning more money, investing is not simply throwing your money at any random investment. It is important not just to invest but you must invest wisely.
A real investor performs thorough analysis and puts in his or her money only when there is a reasonable expectation of profit. There might be risks and the outcome is not guaranteed, but when you invest you have the potential of better gains.
The goal of investing is to put your money to work in one or more types of investment vehicles in the hopes of growing your money over time. Investing some of your hard-earned money for your future needs is a way to make the most of what you earn.
So regardless of your current age, it’s never too late to begin investing and growing your money to be able to support your lifestyle and secure your financial future.
But wait, there’s actually a better option. You can start your own business with zero capital; a business that you can manage wherever you are for as long as you have a laptop and a good internet connection. No kidding!
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