Investing
Investing
Learning how to invest your money is one of the most important lessons in life. You don't need to be college educated to start investing.
You just need to have a basic understanding of business and have the confidence to make a plan consider it a business plan for your life.
Why Investing Can Be Scary
For many of us, money and investments weren't discussed at home. If your parents aren't financially independent, they probably can't give you good financial advice despite their best intentions. And even if your family is well-off, there's no guarantee that their financial advice makes sense for you.
The Goal of Investing
Of course, everyone has different financial goals and the more you learn, the more confident you'll be in determining your own path. But here's a basic financial goal to strive toward:
Over decades of hard work, I would like to make more money than I spend and invest the difference. By the time I retire, I would like my investments to throw off enough cash through dividends or interest that I can live on this income without having to sell my investments.
Notice the first part of this goal is about hard work. If you plan to work for a few decades, and want to make sure that you don't have to work until life's end, you'll need to spend less than you make and invest the difference.
Also, you'll notice that this goal doesn't recommend selling your investments. Rich people don't sell-off their assets for spending money if they did, they wouldn't be rich for long. They stay rich because their assets provide enough cash flow to support their lifestyle.
And these cash-producing assets, through careful estate planning, can be passed down from generation to generation.
What Should I Invest In?
The most common investments are stocks and bonds, which most financial advisers agree should be held in some proportion based upon your personal circumstances. Stocks represent partial ownership of a company and bonds are a form of "I owe you."
There are other ways to invest for instance, real estate investment trusts (REITs) and these types of investments have their place. But you needn't focus on them if you are just starting out -- sticking to stocks and bonds is just fine. But if you have debt; whether, it's credit card debt, mortgage debt or student loans it may not make sense for you to own bonds, or, to invest at all.
Know the Difference Between Saving and Investing
There are a few steps before you can become a successful investor: you being employed, having essential insurance coverage, having your personal debts under control and having an emergency savings account in case you lose your job. Your investments and your savings are very different things. What if the stock market crashes and you lose your job? If you do not have a cash savings account and your unemployment benefits do not cover your living expenses you'll probably have to sell your investments at the worst possible time. Don't fall into this trap.
The question of investing is key in a growing economy such as Kenya’s. There are a lot of young entrepreneurs who are all set to achieve their financial goals. Other crucial question asked include:
- Should someone invest or pay debts?
- What are some of the strategies of lifetime investment?
In the next article, we’ll handle these and also tell you more on buying of stocks, regarding investments in stocks.
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