You’ve heard it a million times before, save, save, save. From when you were a little kid and your parents made you put away a dollar of your allowance every week, to your high school personal finance class, to your company’s human resource department advising you on your retirement funds, saving has always been a major part of your money management. Now that you’re making more than just enough to go out with your friends on the weekend, it’s time to start getting serious about planning for your financial future. Saving can be intimidating, especially when you consult with people that are familiar with the financial world. While it might seem like the safest idea during some stints of our economy, keeping your money under your mattress or in a cookie jar above your refrigerator doesn’t quite cut it. If you want to be efficient with your money management, there are many options you’re going to have to consider when it comes to saving.
The stock market
Some people want to jump straight to the stock market when they get their hands on extra money. While this can be extremely lucrative, it can also be very risky. The stock market can be intimidating for a first-timer, and so anyone that’s unfamiliar with the lingo and how it all works should seek financial consultation from an advisor. Professionals in the industry know how to take your money and diversify it in different types of stocks in order to balance out the risk and aim for the highest return possible. If you strongly believe in a specific stock, it’s a good idea to slowly begin investing in it. On the other hand, investing on a hunch or advice from someone you just met isn’t a good enough reason to spend all of your life savings on stock. It’s a decision that requires a good amount of research, but can be very lucrative in the long-run.
Mutual funds
A mutual fund is another type of investment that’s made up of multiple people’s pooled money. The people who put their money in the mutual fund collectively invest in stocks, bonds, and other types of securities. Professionals manage mutual funds and so once you’re in it, you don’t have to make decisions. When you’re a part of a mutual fund, you have to pay operating and management fees, but it’s often more than worth the return. If you’re seriously interested in investing via mutual funds, there’s much more research you need to do.
Hedge funds
Hedge funds are similar to mutual funds except for they are more aggressively managed. The concept of pooling many investors money together to invest in securities is the same, except for the SEC regulates them loosely whereas mutual funds must follow many rules and regulations. Just like mutual funds, there are professionals in charge of hedge fund administration. Because of the higher risk involved in hedge funds, only accredited investors are allowed to take part in them. This means you either have to earn a certain amount of money per year or have a large net worth. Hedge funds also often use borrowed money to invest in ventures, another added feature of risk.
Bonds
As Investopedia puts it “bonds represent debt obligations- and therefore are a form of borrowing. If a company issues a bond, the money they receive in return is a loan, and must be repaid over time.” So in more simplistic terms, a company or institution is borrowing money from you and therefore they’re going to pay you all that they borrowed plus interest once the bond has matured. Bonds are generally a very safe way to invest, but you don’t have access to your returns until they’ve matured. This means your money can be illiquid for years and you won’t have it in case of emergency. Many people gift bonds to young children so that they’ll have money years down the road.
Budgeting
Sometimes you’re stuck wishing the problem were that you don’t know where to put your extra money to invest and then save, but instead you find yourself with no extra money at all. If that’s the case, you’re either not making enough money, or you’re budgeting incorrectly. It’s always best to have a budget written out so that you’re more inclined to follow it. Start by writing down your consistent monthly expenses. These will probably include your rent or mortgage payment, your health insurance, car insurance, car payment, gas, food bill, utilities, cellphone, and entertainment expenses. Once you’ve got that, you need to designate proportions of your income to those expenses. If your car payment is costing you 50% of your monthly income, you’ve found your problem. Make sure to save 10% for savings/investments.
Retirement
Even if you’re new to the adult life and just recently started your career, you should already be thinking about retirement. If you want to have a comfortable retirement, it’s imperative that you start putting money away now. There are many different retirement accounts so it’s important to gather information regarding which, if any, your company has to offer you. Some of the most popular retirement funds include 401(k), 403(b), Simple IRA, and Roth IRA. Depending on whom you work for, some companies will match the money you put into your 401(k) up to a certain value each month. Most advisors will tell you to max out how much you can put in this type of account because in the long-run you’re earning free money. IRA’s work a little bit differently and the type of IRA you choose will have different implications on your taxes. It’s important to understand how each work before you decide which is best for your situation.
Saving your money isn’t something that people exactly want to do until they’re forced to dip into that emergency fund. In such a case, it’s always better safe than sorry. Learn your options and start planning for your financial future.
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