When I asked all of you what you don’t have in your financial plan in my poll on twitter, I understood that many people actually don’t get into investing. Investing has bad reputation of being potentially risky and overall not that exciting when there is a chance of loosing all your money. This area can’t be tackled without a little bit of education, so I’m going to explain to you why and when you should invest.
Ok, so investing means to take some money from your bank account, transfer it to the investment account or fund and use it to get a return. This return is basically a payment to you for letting use your money, unless you buy a house or some physical asset (then return is what you get from reselling it to someone else when the asset becomes more valuable).
There are four main types of investments (asset classes):
- Cash – saving money
- Property – buying physical building
- Shares – buying a part of a company
- Bonds – lending your money to a government or company
Investing early creates better returns
You can and should invest money if you’re young. The more time you got till you’re retired, the better will be your return. Even if you start with investing £5 a month, as long as you invest regularly and consistently it should be enough for you to enjoy your returns after 10 or more years.
For older people I would not suggest investing because they won’t get as great returns, plus their goals might only be short-to medium term long.
Get rid of the excess money
You may say ‘But there isn’t such a thing as excess money’, but for some people having even some money left over at the end of the month can be a gateway to their bad financial habits. Usually that happens after you paid all your bills, paid into savings, and bought all you wanted that month, so you have no idea how to account for that money in the next month budget.
So, you can keep your budget clean by investing what you have left over every month. But be careful not to leave anything at all for the next month’s direct debits in the start of the month. Unauthorised overdraft can cost some money if you’re not careful.
Reach your long term goals
Housing market is always difficult to tap into, especially for us millennials. But one thing you can do to help you with the down-payment is to invest in Stocks and Shares ISA or Bonds. It is only if you’re planning to be saving money for it for over 10 years.
Plus, if you’re trying to save money for over 10 years, the inflation can seriously damage the purchasing power of your money. So, it is better to invest if you’re saving long term.
Change the world
While it is advisable that you only invest into profitable companies and have a healthy portfolio, it is possible to only invest into what resonates with you the most. Like you can invest into an organisation that deals with climate change, or a retail business that is very eco-friendly. The more investors those venues have, the more they can do for the world. That should drive more profit into the business and, hopefully, more investors to join you in investing into something that really matters.
Thank you for reading this post, I’ll be back to you with more money wisdom’s for artists tomorrow!
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