How to Start Investing

How to Start Investing.

It is never too soon to start investing. Investing is the smartest way to secure your financial future and to begin letting your money make more money for you. Investing is not just for people who have plenty of spare cash. On the contrary, anyone can (and should) invest. You can get started with just a little bit of money and a lot of know-how. By formulating a plan and familiarizing yourself with the tools available, you can quickly learn how to start investing.

Part 1 Getting Acquainted with Different Investment Vehicles.
1. Make sure you have a safety net. Holding some money in reserve is a good idea because (a) if you lose your investment you'll have something to fall back on, and (b) it will allow you to be a bolder investor, since you won't be worried about risking every penny you own.
Save between three and six months' worth of expenses. Call it your emergency fund, set aside for large, unexpected expenses (job loss, medical expenses, auto accident, etc.). This money should be in cash or some other form that's very conservative and immediately available.
Once you have an emergency fund established, you can start to save for your long-term goals, like buying a home, retirement, and college tuition.
If your employer offers a retirement plan, this is a great vehicle for saving, because it can save on your tax bill, and your employer may contribute money to match some of your own contributions, which amounts to "free" money for you.
If you don't have a retirement plan through your workplace, most employees are allowed to accumulate tax-deferred savings in a traditional IRA or a Roth IRA. If you are self-employed, you have options like a SEP-IRA or a "SIMPLE" IRA. Once you've determined the type of account(s) to set up, you can then choose specific investments to hold within them.
Get current on all your insurance policies. This includes auto, health, homeowner's/renter's, disability, and life insurance. With luck you'll never need insurance, but it's nice to have in the event of disaster.
2. Learn a little bit about stocks. This is what most people think of when they consider "investing." Put simply, a stock is a share in the ownership of a business, a publicly-held company. The stock itself is a claim on what the company owns — its assets and earnings.  When you buy stock in a company, you are making yourself part-owner. If the company does well, the value of the stock will probably go up, and the company may pay you a "dividend," a reward for your investment. If the company does poorly, however, the stock will probably lose value.
The value of stock comes from public perception of its worth. That means the stock price is driven by what people think it's worth, and the price at which a stock is purchased or sold is whatever the market will bear, even if the underlying value (as measured by certain fundamentals) might suggest otherwise.
A stock price goes up when more people want to buy that stock than sell it.  Stock prices go down when more people want to sell than buy. In order to sell stock, you have to find someone willing to buy at the listed price. In order to buy stock, you have to find someone selling their stock at a price you like.
The job of a stockbroker is to pair up buyers and sellers.
"Stocks" can mean a lot of different things. For example, penny stocks are stocks that trade at relatively low prices, sometimes just pennies.
Various stocks are bundled into what's called an index, like the Dow Jones Industrials, which is a list of 30 high-performing stocks. An index is a useful indicator of the performance of the whole market.
3. Familiarize yourself with bonds. Bonds are issuances of debt, similar to an IOU. When you buy a bond, you're essentially lending someone money.  The borrower ("issuer") agrees to pay back the money (the "principal") when the life ("term") of the loan has expired. The issuer also agrees to pay interest on the principal at a stated rate. The interest is the whole point of the investment. The term of the bond can range from months to years, at the end of which period the borrower pays back the principal in full.
Here's an example: You buy a five-year municipal bond for $10,000 with an interest rate of 2.35%. Thus, you lend the municipality $10,000. Each year the municipality pays you interest on your bond in the amount of of 2.35% of $10,000, or $235. After five years the municipality pays back your $10,000. So you've made back your principal plus a profit of $1175 in interest (5 x $235).
Generally the longer the term of the bond, the higher the interest rate. If you're lending your money for a year, you probably won't get a high interest rate, because one year is a relatively short period of risk. If you're going to lend your money and not expect it back for ten years, however, you will be compensated for the higher risk you're taking, and the interest rate will be higher. This illustrates an axiom in investing: The higher the risk, the higher the return.
4. Understand the commodities market. When you invest in something like a stock or a bond, you invest in the business represented by that security. The piece of paper you get is worthless, but what it promises is valuable. A commodity, on the other hand, is something of inherent value, something capable of satisfying a need or desire. Commodities include pork bellies (bacon), coffee beans, oil, natural gas, and potash, among many other items. The commodity itself is valuable, because people want and use it.
People often trade commodities by buying and selling "futures." A future is simply an agreement to buy or sell a commodity at a certain price sometime in the future.
Futures were originally used as a "hedging" technique by farmers. Here's a simple example of how it works: Farmer Joe grows avocados. The price of avocados, however, is typically volatile, meaning that it goes up and down a lot. At the beginning of the season, the wholesale price of avocados is $4 per bushel. If Farmer Joe has a bumper crop of avocados but the price of avocados drops to $2 per bushel in April at harvest, Farmer Joe may lose a lot of money.
Joe, in advance of harvest as insurance against such a loss, sells a futures contract to someone. The contract stipulates that the buyer of the contract agrees to buy all of Joe's avocados at $4 per bushel in April.
Now Joe has protection against a price drop. If the price of avocados goes up, he'll be fine because he can sell his avocados at the market price. If the price of avocados drops to $2, he can sell his avocados at $4 to the buyer of the contract and make more than other farmers who don't have a similar contract.
The buyer of a futures contract always hopes that the price of a commodity will go up beyond the futures price he paid. That way he can lock in a lower-than-market price. The seller hopes that the price of a commodity will go down. He can buy the commodity at low (market) prices and then sell it to the buyer at a higher-than-market price.
5. Know a bit about investing in property. Investing in real estate can be a risky but lucrative proposition. There are lots of ways you can invest in property. You can buy a house and become a landlord. You pocket the difference between what you pay on the mortgage and what the tenant pays you in rent. You can also flip homes. That means you buy a home in need of renovations, fix it up, and sell it as quickly as possible. Real estate can be a profitable vehicle for some, but it is not without substantial risk involving property maintenance and market value.
Other ways of gaining exposure to real estate include collateralized mortgage obligations (CMOs) and collateralized debt obligations (CDOs), which are mortgages that have been bundled into securitized instruments. These, however, are tools for sophisticated investors: their transparency and quality can vary greatly, as revealed during the 2008 downturn.
Some people think that home values are guaranteed to go up. History has shown otherwise: real estate values in most areas show very modest rates of return after accounting for costs such as maintenance, taxes and insurance. As with many investments, real estate values do invariably rise if given enough time. If your time horizon is short, however, property ownership is not a guaranteed money-maker.
Property acquisition and disposal can be a lengthy and unpredictable process and should be viewed as a long-term, higher-risk proposition. It is not the type of investment that is appropriate if your time horizon is short and is certainly not a guaranteed investment.
6. Learn about mutual funds and exchange-traded funds (ETFs). Mutual funds and ETFs are similar investment vehicles in that each is a collection of many stocks and/or bonds (hundreds or thousands in some cases). Holding an individual security is a concentrated way of investing – the potential for gain or loss is tied to a single company – whereas holding a fund is a way to spread the risk across many companies, sectors or regions. Doing so can dampen the upside potential but also serves to protect against the downside risk.
Commodities exposure is usually achieved by holding futures contracts or a fund of futures contracts. Real estate can be held directly (by owning a home or investment property) or in a real estate investment trust (REIT) or REIT fund, which holds interests in a number of residential or commercial properties.

Part 2 Mastering Investment Basics.
1. Buy undervalued assets ("buy low, sell high"). If you're talking about stocks and other assets, you want to buy when the price is low and sell when the price is high. If you buy 100 shares of stock on January 1st for $5 per share, and you sell those same shares on December 31st for $7.25, you just made $225. That may seem a paltry sum, but when you're talking about buying and selling hundreds or even thousands of shares, it can really add up.
How do you tell if a stock is undervalued? You need to look at a company closely — its earnings growth, profit margins, its P/E ratio, and its dividend yield — instead of looking at just one aspect and making a decision based on a single ratio or a momentary drop in the stock's price.
The price-to-earnings ratio is a common way of determining if a stock is undervalued. It simply divides a company's share price by its earnings. For example, if Company X is trading at $5 per share, with earnings of $1 per share, its price-to-earnings ratio is 5. That is to say, the company is trading at five times its earnings. The lower this figure, the more undervalued the company may be. Typical P/E ratios range between 15 and 20, although ratios outside that range are not uncommon. Use P/E ratios as only one of many indications of a stock's worth.
Always compare a company to its peers. For example, assume you want to buy Company X. You can look at Company X's projected earnings growth, profit margins, and price-to-earnings ratio. You would then compare these figures to those of Company X's closest competitors. If Company X has better profit margins, better projected earnings, and a lower price-to-earnings ratio, it may be a better buy.
Ask yourself some basic Question : s: What will the market be for this stock in the future? Will it look bleaker or better? What competitors does this company have, and what are their prospects? How will this company be able to earn money in the future? These should help you come to a better understanding of whether a company's stock is under- or over-valued.
2. Invest in companies that you understand. Perhaps you have some basic knowledge regarding some business or industry. Why not put that to use? Invest in companies or industries that you know, because you're more likely to understand revenue models and prospects for future success. Of course, never put all your eggs in one basket: investing in only one -- or a very few -- companies can be quite risky. However, wringing value out of a single industry (whose workings you understand) will increase your chances of being successful.
For example, you may hear plenty of positive news on a new technology stock. It is important to stay away until you understand the industry and how it works. The principle of investing in companies you understand was popularized by renowned investor Warren Buffett, who made billions of dollars sticking only with business models he understood and avoiding ones he did not.
3. Avoid buying on hope and selling on fear. It's very easy and too tempting to follow the crowd when investing. We often get caught up in what other people are doing and take it for granted that they know what they're talking about. Then we buy stocks just because other people buy them or sell them when other people do. Doing this is easy. Unfortunately, it's a good way to lose money. Invest in companies that you know and believe in — and tune out the hype — and you'll be fine.
When you buy a stock that everyone else has bought, you're buying something that's probably worth less than its price (which has probably risen in response to the recent demand). When the market corrects itself (drops), you could end up buying high and then selling low, just the opposite of what you want to do. Hoping that a stock will go up just because everyone else thinks it will is foolish.
When you sell a stock that everyone else is selling, you're selling something that may be worth more than its price (which likely has dropped because of all the selling). When the market corrects itself (rises), you've sold low and will have to buy high if you decide you want the stock back.
Fear of losses can prove to be a poor reason to dump a stock.
If you sell based on fear, you may protect yourself from further declines, but you may also miss out on a rebound. Just as you did not anticipate the decline, you will not be able to predict the rebound. Stocks have historically risen over long time frames, which is why holding on to them and not over-reacting to short-term swings is important.
4. Know the effect of interest rates on bonds. Bond prices and interest rates have an inverse relationship. When interest rates go up, bond prices go down. When interest rates go down, bond prices go up. Here's why:
Interest rates on bonds normally reflect the prevailing market interest rate. Say you buy a bond with an interest rate of 3%. If interest rates on other investments then go up to 4% and you're stuck with a bond paying 3%, not many people would be willing to buy your bond from you when they can buy another bond that pays them 4% interest. For this reason, you would have to lower the price of your bond in order to sell it. The opposite situation applies when bond market rates are falling.
5. Diversify. Diversifying your portfolio is one of the most important things that you can do, because it diminishes your risk. Think of it this way: If you were to invest $5 in each of 20 different companies, all of the companies would have to go out of business before you would lose all your money. If you invested the same $100 in just one company, only that company would have to fail for all your money to disappear. Thus, diversified investments "hedge" against each other and keep you from losing lots of money because of the poor performance of a few companies.
Diversify your portfolio not only with a good mix of stocks and bonds, but go further by buying shares in companies of different sizes in different industries and in different countries. Often when one class of investment performs poorly, another class performs nicely. It is very rare to see all asset classes declining at the same time.
Many believe a balanced or "moderate" portfolio is one made up of 60% stocks and 40% bonds. Thus, a more aggressive portfolio might have 80% stocks and 20% bonds, and a more conservative portfolio might have 70% bonds and 30% stocks. Some advisors will tell you that your portfolio's percentage of bonds should roughly match your age.
6. Invest for the long run.  Choosing good-quality investments can take time and effort. Not everyone can do the research and keep up with the dynamics of all the companies being considered. Many people instead employ a "buy and hold" approach of weathering the storms rather than attempting to predict and avoid market downturns. This approach works for most in the long term but requires patience and discipline. There are some, however, who choose to try their hand at being a day-trader, which involves holding stocks for a very short time (hours, even minutes). Doing so, however, does not often lead to success over the long term for the following reasons:
Brokerage fees add up. Every time you buy or sell a stock, a middleman known as a broker takes a cut for connecting you with another trader. These fees can really add up if you're making a lot of trades every day, cutting into your profit and magnifying your losses.
Many try to predict what the market will do and some will get lucky on occasion by making some good calls (and will claim it wasn't luck), but research shows that this tactic does not typically succeed over the long term.
The stock market rises over the long term. From 1871 to 2014, the S&P 500's compound annual growth rate was 9.77%, a rate of return many investors would find attractive. The challenge is to stay invested long-term while weathering the ups and downs in order to achieve this average: the standard deviation for this period was 19.60%, which means some years saw returns as high as 29.37% while other years experienced losses as large as 9.83%.  Set your sights on the long term, not the short. If you're worried about all the dips along the way, find a graphical representation of the stock market over the years and hang it somewhere you can see whenever the market is undergoing its inevitable–and temporary–declines.
7. Consider whether or not to short sell. This can be a "hedging" strategy, but it can also amplify your risk, so it's really suitable only for experienced investors. The basic concept is as follows: Instead of betting that the price of a security is going to increase, "shorting" is a bet that the price will drop. When you short a stock (or bond or currency), your broker actually lends you shares without your having to pay for them. Then you hope the stock's price goes down. If it does, you "cover," meaning you buy the actual shares at the current (lower) price and give them to the broker. The difference between the amount credited to you in the beginning and the amount you pay at the end is your profit.
Short selling can be dangerous, however, because it's not easy to predict a drop in price. If you use shorting for the purpose of speculation, be prepared to get burned sometimes. If the stock's price were to go up instead of down, you would be forced to buy the stock at a higher price than what was credited to you initially. If, on the other hand, you use shorting as a way to hedge your losses, it can actually be a good form of insurance.
This is an advanced investment strategy, and you should generally avoid it unless you are an experienced investor with extensive knowledge of markets. Remember that while a stock can only drop to zero, it can rise indefinitely, meaning that you could lose enormous sums of money through short-selling.

Part 3 Starting Out.
1. Choose where to open your account. There are different options available: you can go to a brokerage firm (sometimes also called a wirehouse or custodian) such as Fidelity, Charles Schwab or TD Ameritrade. You can open an account on the website of one of these institutions, or visit a local branch and choose to direct the investments on your own or pay to work with a staff advisor. You can also go directly to a fund company such as Vanguard, Fidelity, or T. Rowe Price and let them be your broker. They will offer you their own funds, of course, but many fund companies (such as the three just named) offer platforms on which you can buy the funds of other companies, too. See below for additional options in finding an advisor.
Always be mindful of fees and minimum-investment rules before opening an account. Brokers all charge fees per trade (ranging from $4.95 to $10 generally), and many require a minimum initial investment (ranging from $500 to much higher).
Online brokers with no minimum initial-investment requirement include Capital One Investing, TD Ameritrade, First Trade, TradeKing, and OptionsHouse.
If you want more help with your investing, there is a variety of ways to find financial advice: if you want someone who helps you in a non-sales environment, you can find an advisor in your area at one of the following sites: letsmakeaplan.org, www.napfa.org, and garrettplanningnetwork.com. You can also go to your local bank or financial institution. Many of these charge higher fees, however, and may require a large opening investment.
Some advisors (like Certified Financial Planners™) have the ability to give advice in a number of areas such as investments, taxes and retirement planning, while others can only act on a client's instructions but not give advice, It's also important to know that not all people who work at financial institutions are bound to the "fiduciary" duty of putting a client's interests first. Before starting to work with someone, ask about their training and expertise to make sure they are the right fit for you.
2. Invest in a Roth IRA as soon in your working career as possible. If you're earning taxable income and you're at least 18, you can establish a Roth IRA. This is a retirement account to which you can contribute up to an IRS-determined maximum each year (the latest limit is the lesser of $5,500 or the amount earned plus an additional $1,000 "catch up" contribution for those age 50 or older). This money gets invested and begins to grow. A Roth IRA can be a very effective way to save for retirement.
You don't get a tax deduction on the amount you contribute to a Roth, as you would if you contributed to a traditional IRA. However, any growth on top of the contribution is tax-free and can be withdrawn without penalty after you turn age 59½ (or earlier if you meet one of the exceptions to the age 59½ rule).
Investing as soon as possible in a Roth IRA is important. The earlier you begin investing, the more time your investment has to grow. If you invest just $20,000 in a Roth IRA before you're 30 years old and then stop adding any more money to it, by the time you're 72 you'll have a $1,280,000 investment (assuming a 10% rate of return). This example is merely illustrative. Don't stop investing at 30. Keep adding to your account. You will have a very comfortable retirement if you do.
How can a Roth IRA grow like this? By compound interest. The return on your investment, as well as reinvested interest, dividends and capital gains, are added to your original investment such that any given rate of return will produce a larger profit through accelerated growth. If you are earning an average compound annual rate of return of 7.2%, your money will double in ten years. (This is known as "the rule of 72.")
You can open a Roth IRA through most online brokers as well as through most banks. If you are using a self-directed online broker, you will simply select a Roth IRA as the type of account while you are registering.
3. Invest in your company's 401(k). A 401(k) is a retirement-savings vehicle into which an employee can direct portions of his or her paychecks and receive a tax deduction in the year of the contributions. Many employers will match a portion of these contributions, so the employee should contribute at least enough to trigger the employer match.
4. Consider investing mainly in stocks but also in bonds to diversify your portfolio. From 1925 to 2011, stocks outperformed bonds in every rolling 25-year period. While this may sound appealing from a return standpoint, it entails volatility, which can be worrisome. Add less-volatile bonds to your portfolio for the sake of stability and diversification. The older you get, the more appropriate it becomes to own bonds (a more conservative investment). Re-read the above discussion of diversification.
5. Start off investing a little money in mutual funds. An index fund is a mutual fund that invests in a specific list of companies of a particular size or economic sector. Such a fund performs similarly to its index, such as the S&P 500 index or the Barclays Aggregate Bond index.
Mutual funds come in different shapes and sizes. Some are actively managed, meaning there is a team of analysts and other experts employed by the fund company to research and understand a particular geographical region or economic sector. Because of this professional management, such funds generally cost more than index funds, which simply mimic an index and don't need much management. They can be bond-heavy, stock-heavy, or invest in stocks and bonds equally. They can buy and sell their securities actively, or they can be more passively managed (as in the case of index funds).
Mutual funds come with fees. There may be charges (or "loads") when you buy or sell shares of the fund. The fund's "expense ratio" is expressed as a percentage of total assets and pays for overhead and management expenses. Some funds charge a lower-percentage fee for larger investments. Expense ratios generally range from as low as 0.15% (or 15 basis points, abbreviated "BPS") for index funds to as high as 2% (200 BPS) for actively managed funds. There may also be a "12b-1" fee charged to offset a fund's marketing expenses.
The U.S. Securities and Exchange Commission states that no evidence exists that higher-fee mutual funds produce better returns than do lower-fee funds. In other words, deal with lower-fee funds.
Mutual funds can be purchased through nearly any brokerage service. Even better is to purchase directly from a mutual fund company. This avoids brokerage fees. Call or write the fund company or visit their website. Opening a fund account is simple and easy. See Invest in Mutual Funds.
6. Consider exchange-traded funds in addition to or instead of mutual funds. Exchange-traded funds (ETFs) are very similar to mutual funds in that they pool people's money and buy many investments. There are a few key differences.
ETFs can be traded on an exchange throughout the business day just like stocks, whereas mutual funds are bought and sold only at the end of each trading day.
ETFs are typically index funds and do not generate as much in the way of taxable capital gains to pass on to investors as compared with actively managed funds. ETFs and mutual funds are becoming less distinct from each other, and investors need not own both types of investment. If you like the idea of buying and selling fund shares during (rather than at the end of) the trading day, ETFs are a good choice for you.

Part 4 Making the Most of Your Money.
1. Consider using the services of a financial planner or advisor. Many planners and advisors require that their clients have an investment portfolio of at least a minimum value, sometimes $100,000 or more. This means it could be hard to find an advisor willing to work with you if your portfolio isn't well established. In that case, look for an advisor interested in helping smaller investors.
How do financial planners help? Planners are professionals whose job is to invest your money for you, ensure that your money is safe, and guide you in your financial decisions. They draw from a wealth of experience at allocating resources. Most importantly, they have a financial stake in your success: the more money you make under their tutelage, the more money they make.
2. Buck the herd instinct. The herd instinct, alluded to earlier, is the idea that just because a lot of other people are doing something, you should, too.  Many successful investors have made moves that the majority thought were unwise at the time.
That doesn't mean, however, that you should never seek investment advice from other people. Just be wise about choosing the people you listen to. Friends or family members with a successful background in investing can offer worthwhile advice, as can professional advisors who charge a flat fee (rather than a commission) for their help.
Invest in smart opportunities when other people are scared. In 2008 as the housing crisis hit, the stock market shed thousands of points in a matter of months. A smart investor who bought stocks as the market bottomed out enjoyed a strong return when stocks rebounded.
This reminds us to buy low and sell high. It takes courage to buy investments when they are becoming cheaper (in a falling market) and sell those investments when they are looking better and better (a rising market). It seems counter-intuitive, but it's how the world's most successful investors made their money.
3. Know the players in the game.  Which institutional investors think that your stock is going to drop in price and have therefore shorted it? What mutual fund managers have your stock in their fund, and what is their track record? While it helps to be independent as an investor, it's also helpful to know what respected professionals are doing.
There are websites which compile recent opinions on a stock from analysts and expert investors. For example, if you are considering a purchase of Tesla shares, you can search Tesla on Stockchase. It will give you all the recent expert opinions on the stock.
4. Re-examine your investment goals and strategies every so often. Your life and conditions in the market change all the time, so your investment strategy should change with them. Never be so committed to a stock or bond that you can't see it for what it's worth.
While money and prestige may be important, never lose track of the truly important, non-material things in life: your family, friends, health, and happiness.
For example, if you are very young and saving for retirement, it may be appropriate to have most of your portfolio invested in stocks or stock funds. This is because you would have a longer time horizon in which to recover from any big market crashes or declines, and you would be able to benefit from the long-term trend of markets moving higher.
If you are just about to retire, however, having much less of your portfolio in stocks, and a large portion in bonds and/or cash equivalents is wise. This is because you will need the money in the short-term, and as a result you do not want to risk losing the money in a stock market crash right before you need it.

Community Q&A
Question : I have low money, how I can get rich?
Answer : Expect it to take many years to get rich. Follow any or all of the steps outlined above.
Question : How do I find a broker to invest in the stock market?
Answer : There are several discount brokers online who charge a small fee for buying stock for you. There are also stockbrokers in most cities you can deal with in person. They charge a bit more, but they can offer you more personal service and help you choose stocks if you'd like.
Question : What if I have a stock in mind, but don't want a broker/brokerage firm? How do I actually purchase stock from that particular company, immediately?
Answer : Look online for the company's investor-relations department phone number. Call and ask if they offer direct stock purchases. If so, they will give you instructions for purchasing their stock. They may take a credit card, or you can write them a check.
Question : How do I start investing? Do I need an agent? Can Canadians invest in US Stocks?
Answer : Canadians -- and anyone else -- may invest in U.S. stocks. The typical way it's done is through a stockbroker. A good way to start investing is to consult with an experienced, fee-based financial advisor. A fee-based advisor does not make money by convincing you to make a particular investment.
Question : What is the difference between "ex-dividend date" and "record date"?
Answer : A "record date" is the date a dividend distribution is declared, the date at the close of which one must be the shareholder in order to receive the declared dividend. An "ex-dividend date" is typically two business days before the record date. When shares of a stock are sold near the record date of a dividend declaration, the ex-dividend date is the last day on which the seller is clearly entitled to the dividend payment.
Question : Is a financial planner really necesary?
Answer : Not if you can supply your own financial acumen and practical level-headedness. If you are not clueless about finances, or if you're personally acquainted with someone with considerable financial experience to share with you, there's no need to pay for advice. Having said that, however, the more money you want to place at risk, the more a fee-only advisor is worth hiring.
Question : How do I initiate an investment process after I open the account?
Answer : Your broker can explain the process to you. It's just a matter of telling the broker which investment(s) you want to buy. A full-service broker will help you make that decision if you'd like.
Question : I want to buy Exxon stocks right now online. What's the best way?
Answer : See Part 3 of Buy Stocks.
Question : If my company is closing, can I withdraw the 401k without any penalty?
Answer : Your 401k is probably "portable," meaning you can take it with you without penalty if you switch jobs. In your case, you shouldn't have any trouble removing the funds (assuming you plan to deposit them in another similar plan).
Question : Is it OK to connect my stock market account with my savings account?
Answer : Yes, that's a safe place to keep your money while you're not using it to buy stock.

Tips.
One of the most painless and efficient ways to invest is to dedicate a portion of each paycheck to regular contributions to an investment account. Doing so can provide some great advantages:
Dollar-cost averaging: by saving a steady amount every payday, you purchase more shares of an investment when the share price is lower and fewer shares when the price is higher. That keeps the average share price you pay relatively low.
A disciplined savings plan: having a portion withheld from your paycheck is a way of putting money away before you have a chance to spend it and can translate into a consistent habit of saving.
The "miracle" of compound interest: earning interest on previously earned interest is what Albert Einstein called "the eighth wonder of the world." Compounding is guaranteed to make your retirement years easier if you let it work its magic by leaving your money invested and untouched for as long as possible. Many years of compounding can bring astonishingly good results.

Warnings.

If you intend to hire a financial advisor, make sure s/he is a "fiduciary." That's a person who is legally bound to propose investments for you that will benefit you. An advisor who is not a fiduciary may propose investments that will mainly benefit the advisor (not you).
When looking for an advisor, choose one who charges you a flat fee for advice, not one who is paid a commission by the vendor of an investment product. A fee-based advisor will retain you as a happy client only if his/her advice works out well for you. A commission-based advisor's success is based on selling you a product, regardless of how well that product performs for you.

June 04, 2020

How to Understand Personal Finance Basics

How to Understand Personal Finance Basics.

Understanding your personal finances can be very overwhelming, particularly if you’re just starting out. It is tough to know how best to handle your money, how to go about paying off debt, and where and when to invest. By following some basic steps for doing these things, as well as saving for emergencies and retirement and insuring the assets you’ve worked hard to obtain, you can begin to understand your personal finances and become more confident in your ability to make good decisions regarding them.





Learning How to Create a Budget.



Gather your financial statements and information. Creating a budget is one of the most important aspects of personal finance. A solid budget allows you to plan for how you’ll spend the money you bring in each month and illustrates your spending patterns. To begin, gather all the financial information you can, including bank statements, pay stubs, credit card bills, utility bills, investment account statements, and any other information you can think of.

Most people make monthly budgets so your goal is to figure out how much you make in a month and what your monthly expenses are. The more detail you can provide, the better your budget will be.



Record your monthly income. After gathering all of your financial data, separate out your sources of income. Record the amount of income you bring home in a month. Be sure to include any side jobs you have.

If your income varies from month to month, it may be helpful to figure out your average monthly income for the last six months or so.



List your fixed monthly expenses. Next, look over your financial documents and record any fixed expenses you have, or those that are essential and do not change much from month to month.

Fixed expenses can include things like mortgage payments or rent, credit card payments, car payments, and essential utilities like electric, water, and sewage.



List your variable monthly expenses. You also need to record your variable monthly expenses, which are items for which the amount of money you spend each month varies. These expenses are not necessarily essential and are likely where you will make adjustments to your spending in your budget.

Variable expenses can include things like groceries, gasoline, gym memberships, and eating out.



Total your monthly income and expenses. Once you have recorded all of your income and expenses, both fixed and variable, total each category. Ultimately, you want your income to be larger than your expenses. If it is, you can then decide where it is best for you to spend your excess income. If your expenses are more than your income, you will need to make adjustments to your budget to cut your spending or increase your income.



Adjust your variable expenses to hit your goal. If your budget shows you are spending more than you are earning in income, look at your variable expenses to find places you can cut back on spending, since these items are usually non-essential.

For example, if you are eating out four nights a week, you may have to cut this back to two nights a week. This will free up money you can put toward essential expenses like college loans or credit card debt.

In addition, you may be paying unnecessary monthly fees, like overdraft or late fees. If you are spending money on these types of fees, work on making your payments on time and keeping a bit of a cushion in your bank account.

Alternatively, you can work on earning more instead of spending less. Evaluate whether or not you can pick up a few extra hours of work a week, work overtime, or work any side jobs to increase the amount of money you’re bringing in each month.



Review your budget every month. At the end of each month, take some time and review your spending over the past month. Did you stick to your budget? If not, where did you veer off course? Pinpointing where you are exceeding your budget will help you figure out what kind of spending you need to pay attention to most. Reviewing your budget can also be encouraging if you find you are sticking to it. You may find that it’s extremely motivating seeing the amount of money you saved by cutting back the number of days you eat out a week, for example.













Strategizing to Pay Down Debt..



Pay more than the minimum amount due each month. Even following a strict budget doesn’t mean you can totally avoid debt. Large purchases, like cars, school, and houses often require you to take out a significant loan. In addition, it can be easy to rack up credit card debt quickly. One of the personal finance basics you must understand is how to take care of this debt as quickly as possible. The first step to doing this is to pay more than the minimum payment as often as you can.

For example, say the minimum payment on your car loan is $50 a month. Paying even $60 a month toward this loan can help you pay it off sooner and cut down on the amount you pay in finance charges over time. The more you can pay above the minimum, the better.



Transfer credit card balances with high annual percentage rates. If you have a credit card for which you are paying a high annual percentage rate (APR), it might be a good idea to look into transferring this balance to a credit card that offers a lower APR or no APR for a certain amount of time. This way, your entire payment will be applied to your balance, not interest.

Read the fine print before transferring a balance. Most cards charge a transfer fee (3% of the balance, for example) and only offer 0% APR for a limited amount of time (12 or 18 months, for example). Make sure you understand the terms of your new agreement and shop around for the best option before transferring your balance.



Calculate the amount of debt on each credit card. If you have multiple credit cards, compare the amount of debt you have on each one. You can use this information in two different ways:

Some people believe paying off the credit card with the smallest balance first is best. The idea here is that getting the smaller amount of debt paid off will motivate you and allow you to focus on your remaining debt.

Alternatively, some people believe you should focus on paying off the largest balance because you will be paying the most in interest on this balance. To do this, you would try to make more than the minimum payment on this balance, while paying only the minimum on your smaller balance.

If possible, the best solution is to pay more than the minimum simultaneously on each balance.



Dedicate excess funds toward paying off debt. Once you are able to follow your monthly budget, dedicate any extra funds you have at the end of the month toward paying down your debt. It can be tempting to use this money to treat yourself to a fancy dinner or a new TV, but remember your long-term goals before doing this. In the long run, paying down debt will serve you better than treating yourself to something unnecessary.



Consolidate your debt. If you have multiple credit card accounts, student loans, a mortgage, a car loan, or any combination of these debts, consolidating them into one payment may help you manage them more easily. Typically, when you consolidate debt, you’ll get a debt consolidation loan. These loans usually have a lower interest rate and require lower monthly payments.

While consolidating your debt can make it easier to manage, it may also increase the amount you’ll pay in the long run because it extends your payments over a longer period of time.

If your credit score is not good, you may need a co-signer to be able to get a debt consolidation loan.

You can also consolidate your credit card debt by transferring all of your balances to a 0% APR credit card. If you think you can pay off your debt within 12 to 18 months, this might be a good option. However, if you think it will take you significantly longer to pay it off, this might not be a good option because the 0% APR is usually only good for 12 to 18 months.



Refinance your loans. Refinancing is generally a good option if your financial situation has improved since taking out your loan. Similar to consolidating your debt, refinancing your loans also consolidates your debts and may allow you to make lower monthly payments on your loans. Refinancing might also allow you to shorten the term of your loan to pay off your debts more quickly. In addition, depending on your financial situation, you may also be eligible for a lower interest rate.





Choose a student loan repayment plan. If you can afford it, the standard repayment plan is your best option for repaying federal loans. A standard plan requires you to pay the same amount every month over a ten year period. If you can’t afford the payments on a standard plan, however, the government offers two alternative categories of plans—income-driven and basic.

Income-driven repayment plans extend the terms of your loan to 20 or 25 years and require you to pay a certain percentage of your income toward your loan each month, rather than a fixed monthly payment. In addition, any amount still owed at the end of your loan term is forgiven.

Basic plans include standard, graduated, and extended repayment options. Standard is the best option if you can afford it, but graduated or extended plans may be right in some situations. Graduated plans start you off with low payments and gradually increase them over time. This plan can be good if you expect to make more money over the years. Extended plans extend the terms of your loan to 25 years, allowing you to make smaller payments each month, but pay more in interest over time.











Saving for Emergencies and Retirement.



Set up automatic deposits. It can be tough to commit to putting money into your savings account every month, but it is important to do so to ensure you have enough money for emergencies and for your future. If possible, make automatic payments into a saving account each month.

For example, set your bank account so it automatically transfers $50 from your checking account to savings account at least once a month.

Or, if your paycheck gets deposited directly into your account, you can usually set it up so that a certain portion (either a dollar amount or a percentage) is deposited straight into your savings account. Most professionals recommend putting 10 to 20 percent of your income towards savings each month.



Contribute to a retirement savings plan. You should start saving for retirement as soon as possible to ensure you’ll have enough money to live comfortably when you are done working. The amount you need to contribute to this savings account monthly depends on a number of different factors, like when you start saving, how much you are starting with, and whether or not you’re going to receive any kind of employer contribution.

Many employers offer a 401k, or a retirement savings plan, of some kind to their employees. A lot of companies will also match a percentage of the employee’s contributions into this account over time. If your employer offers a plan of this sort, start contributing to it as soon as you can, even if it is just a small amount.

If you are self-employed or your employer does not offer any kind of retirement savings plan, you can set up your own plan through investment websites or many banks.

Consult a financial advisor to figure out how much you should be putting away for retirement to reach your goals.[19]



Build an emergency fund. In addition to saving for retirement, you also need to save for emergencies, like losing a job, costly car repairs, or unexpected medical expenses. You can use your bank’s savings account for this emergency fund.

Financial professionals recommend you have enough in your savings account to cover a month and a half of living expenses for each person you claim as a dependent. For example, if you are married with one child, you should have enough to cover four and a half months of living expenses.











Investing for Beginners.



Invest in a Target Date Fund (TDF). Figuring out where to invest your money is one of the hardest parts of personal finance basics. Essentially, you want to invest in a variety of stocks, bonds, and treasuries—but which ones? Target Date Funds make this a little easier for you. A TDF is basically a hands-off retirement account. You enter the age you want to retire and the TDF will automatically spread the money you put into this account across a wide variety of stocks, bonds, and treasuries.

Some of the recommended companies through which to do this are Vanguard, Fidelity, and T. Rowe Price.



Diversify your investments. If you choose a more hands-on approach to investing, it is important to diversify your portfolio to reduce risk. Diversifying means that you choose a variety of stocks, bonds, and treasuries in which to invest. You should make sure your investments are spread over a number of different companies and industries. This way, if one company or industry suffers a financial downturn, you will only lose a portion of your investment, not the whole thing.



Invest in your 401k. As mentioned above, investing in a 401k provided by your company is a good idea. There are a couple really good things about this option. First of all, most of the time, the money you put into a 401k is deferred on your taxes until you take it out of the account. Some 401ks are taxed before investing, however, so check with your employer to find out which one you have. Second, your employer will often match the amount of money in your 401k (up to a certain amount) so you are, essentially, getting free money just for investing.

You should invest in a company match 401k even if you are in debt. The return you receive on this type of investing is often more than what your debt is.

The amount of money your company will match often depends how much you invest in your 401k. Usually, you have to hit certain investment thresholds, which will then determine the percentage your company will match.



Invest in a Roth IRA. Another investment opportunity offered by many employers is a Roth IRA. In a Roth IRA, you pay taxes up front on your investment. Investing in a Roth IRA is an especially good idea for young people with low incomes, considering the tax rate will likely increase in their lifetime. This type of investment can be very helpful because it will provide you with a pot of money for your retirement that won’t shrink due to taxes.]















Understanding Why to Insure Your Investments.



Get property insurance. You should invest in property insurance to protect your home, which is often one of your biggest assets. Property insurance is actually required if you have a mortgage. This type of insurance will protect you from having to pay out-of-pocket for any major unforeseen home repairs.

If you rent, it is just as important to invest in renter’s insurance. Your belongings can add up to a significant investment and getting renter’s insurance will help protect you in the event of a burglary, fire, flood, or other disaster.



Buy life insurance. Getting life insurance is especially important if you have a family or are married. Life insurance makes sure your income (or at least part of it) is supplemented in the event that you pass away. This is important because your family could face very tough financial situations if they are unable to make up for the portion of income you brought to the table.



Get health insurance. Health insurance premiums can be a small price to pay if you find yourself sick or seriously injured. Medical bills alone can put you in serious debt if you don’t have some sort of insurance policy. In addition, you’ll likely miss a significant amount of work if you are seriously injured, leaving you no way to pay these bills.

Many employers offer health insurance to their employees at a discounted rate. Usually only full-time employees are eligible to receive health insurance through the company, but some companies may offer it to part-time employees as well.

Buying health insurance independently, without the help of an employer, can be expensive. However, it is worth investing in to make sure you are not crippled by debt in the event you become sick or injured.[28]



Buy automobile insurance. Finally, you should invest in automobile insurance. In fact, it is required of anyone who owns a car in the United States. Auto insurance helps cover the cost to repair your car after an accident and medical bills for you and others involved. A major car accident can put you in debt from car repairs and time off work if you’re injured. It is also possible your assets can be seized to help pay for the other driver’s medical bills if the accident is your fault. Having automobile insurance can help diffuse some of these costs and help keep you out of debt.















Working with a Financial Planner.



Start now. One of the most important things you can do for your personal finances is to start thinking about them and working on them early. It may seem like you have plenty of time to save for retirement, but you can actually lose a lot of money in interest if you wait too long. Make financial planning a regular part of your life—like going to the doctor—and get started as soon as possible.

Get your significant other involved. If you are planning a future together, make sure to include your significant other in your planning. Talking to your partner and including them in the process will ensure you are both on the same page with your spending and saving habits and allow you to develop a plan that meets both of your needs.



Be proactive. Some people assume that everything will work out in the long-run and ignore negative cues about their finances. If you do this, however, you could set yourself up for a major loss. Instead, think about how negative financial situations, like severe drops in the stock market, might affect your financial security and plan alternative options.



Plan out the details. Many people see saving for retirement as a race to reach a certain amount of savings before the date they retire. This approach can be misleading, however. Instead, think about the things you’ll need to pay for, like housing, healthcare, eldercare, hobbies, transportation, and so on. Do your best to figure out how much these products and services will cost you and how you’ll finance them.





Tips.

Figuring out how to handle your personal finances can be very confusing whether you’re a beginner or not. It is a good idea to consult a financial planner to help you decide how to best handle your money.

November 13, 2019

how to understand personal finance basics

How to Understand Personal Finance Basics.

Understanding your personal finances can be very overwhelming, particularly if you’re just starting out. It is tough to know how best to handle your money, how to go about paying off debt, and where and when to invest. By following some basic steps for doing these things, as well as saving for emergencies and retirement and insuring the assets you’ve worked hard to obtain, you can begin to understand your personal finances and become more confident in your ability to make good decisions regarding them.





Learning How to Create a Budget.



Gather your financial statements and information. Creating a budget is one of the most important aspects of personal finance. A solid budget allows you to plan for how you’ll spend the money you bring in each month and illustrates your spending patterns. To begin, gather all the financial information you can, including bank statements, pay stubs, credit card bills, utility bills, investment account statements, and any other information you can think of.

Most people make monthly budgets so your goal is to figure out how much you make in a month and what your monthly expenses are. The more detail you can provide, the better your budget will be.



Record your monthly income. After gathering all of your financial data, separate out your sources of income. Record the amount of income you bring home in a month. Be sure to include any side jobs you have.

If your income varies from month to month, it may be helpful to figure out your average monthly income for the last six months or so.



List your fixed monthly expenses. Next, look over your financial documents and record any fixed expenses you have, or those that are essential and do not change much from month to month.

Fixed expenses can include things like mortgage payments or rent, credit card payments, car payments, and essential utilities like electric, water, and sewage.



List your variable monthly expenses. You also need to record your variable monthly expenses, which are items for which the amount of money you spend each month varies. These expenses are not necessarily essential and are likely where you will make adjustments to your spending in your budget.

Variable expenses can include things like groceries, gasoline, gym memberships, and eating out.



Total your monthly income and expenses. Once you have recorded all of your income and expenses, both fixed and variable, total each category. Ultimately, you want your income to be larger than your expenses. If it is, you can then decide where it is best for you to spend your excess income. If your expenses are more than your income, you will need to make adjustments to your budget to cut your spending or increase your income.



Adjust your variable expenses to hit your goal. If your budget shows you are spending more than you are earning in income, look at your variable expenses to find places you can cut back on spending, since these items are usually non-essential.

For example, if you are eating out four nights a week, you may have to cut this back to two nights a week. This will free up money you can put toward essential expenses like college loans or credit card debt.

In addition, you may be paying unnecessary monthly fees, like overdraft or late fees. If you are spending money on these types of fees, work on making your payments on time and keeping a bit of a cushion in your bank account.

Alternatively, you can work on earning more instead of spending less. Evaluate whether or not you can pick up a few extra hours of work a week, work overtime, or work any side jobs to increase the amount of money you’re bringing in each month.



Review your budget every month. At the end of each month, take some time and review your spending over the past month. Did you stick to your budget? If not, where did you veer off course? Pinpointing where you are exceeding your budget will help you figure out what kind of spending you need to pay attention to most. Reviewing your budget can also be encouraging if you find you are sticking to it. You may find that it’s extremely motivating seeing the amount of money you saved by cutting back the number of days you eat out a week, for example.













Strategizing to Pay Down Debt..



Pay more than the minimum amount due each month. Even following a strict budget doesn’t mean you can totally avoid debt. Large purchases, like cars, school, and houses often require you to take out a significant loan. In addition, it can be easy to rack up credit card debt quickly. One of the personal finance basics you must understand is how to take care of this debt as quickly as possible. The first step to doing this is to pay more than the minimum payment as often as you can.

For example, say the minimum payment on your car loan is $50 a month. Paying even $60 a month toward this loan can help you pay it off sooner and cut down on the amount you pay in finance charges over time. The more you can pay above the minimum, the better.



Transfer credit card balances with high annual percentage rates. If you have a credit card for which you are paying a high annual percentage rate (APR), it might be a good idea to look into transferring this balance to a credit card that offers a lower APR or no APR for a certain amount of time. This way, your entire payment will be applied to your balance, not interest.

Read the fine print before transferring a balance. Most cards charge a transfer fee (3% of the balance, for example) and only offer 0% APR for a limited amount of time (12 or 18 months, for example). Make sure you understand the terms of your new agreement and shop around for the best option before transferring your balance.



Calculate the amount of debt on each credit card. If you have multiple credit cards, compare the amount of debt you have on each one. You can use this information in two different ways:

Some people believe paying off the credit card with the smallest balance first is best. The idea here is that getting the smaller amount of debt paid off will motivate you and allow you to focus on your remaining debt.

Alternatively, some people believe you should focus on paying off the largest balance because you will be paying the most in interest on this balance. To do this, you would try to make more than the minimum payment on this balance, while paying only the minimum on your smaller balance.

If possible, the best solution is to pay more than the minimum simultaneously on each balance.



Dedicate excess funds toward paying off debt. Once you are able to follow your monthly budget, dedicate any extra funds you have at the end of the month toward paying down your debt. It can be tempting to use this money to treat yourself to a fancy dinner or a new TV, but remember your long-term goals before doing this. In the long run, paying down debt will serve you better than treating yourself to something unnecessary.



Consolidate your debt. If you have multiple credit card accounts, student loans, a mortgage, a car loan, or any combination of these debts, consolidating them into one payment may help you manage them more easily. Typically, when you consolidate debt, you’ll get a debt consolidation loan. These loans usually have a lower interest rate and require lower monthly payments.

While consolidating your debt can make it easier to manage, it may also increase the amount you’ll pay in the long run because it extends your payments over a longer period of time.

If your credit score is not good, you may need a co-signer to be able to get a debt consolidation loan.

You can also consolidate your credit card debt by transferring all of your balances to a 0% APR credit card. If you think you can pay off your debt within 12 to 18 months, this might be a good option. However, if you think it will take you significantly longer to pay it off, this might not be a good option because the 0% APR is usually only good for 12 to 18 months.



Refinance your loans. Refinancing is generally a good option if your financial situation has improved since taking out your loan. Similar to consolidating your debt, refinancing your loans also consolidates your debts and may allow you to make lower monthly payments on your loans. Refinancing might also allow you to shorten the term of your loan to pay off your debts more quickly. In addition, depending on your financial situation, you may also be eligible for a lower interest rate.





Choose a student loan repayment plan. If you can afford it, the standard repayment plan is your best option for repaying federal loans. A standard plan requires you to pay the same amount every month over a ten year period. If you can’t afford the payments on a standard plan, however, the government offers two alternative categories of plans—income-driven and basic.

Income-driven repayment plans extend the terms of your loan to 20 or 25 years and require you to pay a certain percentage of your income toward your loan each month, rather than a fixed monthly payment. In addition, any amount still owed at the end of your loan term is forgiven.

Basic plans include standard, graduated, and extended repayment options. Standard is the best option if you can afford it, but graduated or extended plans may be right in some situations. Graduated plans start you off with low payments and gradually increase them over time. This plan can be good if you expect to make more money over the years. Extended plans extend the terms of your loan to 25 years, allowing you to make smaller payments each month, but pay more in interest over time.











Saving for Emergencies and Retirement.



Set up automatic deposits. It can be tough to commit to putting money into your savings account every month, but it is important to do so to ensure you have enough money for emergencies and for your future. If possible, make automatic payments into a saving account each month.

For example, set your bank account so it automatically transfers $50 from your checking account to savings account at least once a month.

Or, if your paycheck gets deposited directly into your account, you can usually set it up so that a certain portion (either a dollar amount or a percentage) is deposited straight into your savings account. Most professionals recommend putting 10 to 20 percent of your income towards savings each month.



Contribute to a retirement savings plan. You should start saving for retirement as soon as possible to ensure you’ll have enough money to live comfortably when you are done working. The amount you need to contribute to this savings account monthly depends on a number of different factors, like when you start saving, how much you are starting with, and whether or not you’re going to receive any kind of employer contribution.

Many employers offer a 401k, or a retirement savings plan, of some kind to their employees. A lot of companies will also match a percentage of the employee’s contributions into this account over time. If your employer offers a plan of this sort, start contributing to it as soon as you can, even if it is just a small amount.

If you are self-employed or your employer does not offer any kind of retirement savings plan, you can set up your own plan through investment websites or many banks.

Consult a financial advisor to figure out how much you should be putting away for retirement to reach your goals.[19]



Build an emergency fund. In addition to saving for retirement, you also need to save for emergencies, like losing a job, costly car repairs, or unexpected medical expenses. You can use your bank’s savings account for this emergency fund.

Financial professionals recommend you have enough in your savings account to cover a month and a half of living expenses for each person you claim as a dependent. For example, if you are married with one child, you should have enough to cover four and a half months of living expenses.











Investing for Beginners.



Invest in a Target Date Fund (TDF). Figuring out where to invest your money is one of the hardest parts of personal finance basics. Essentially, you want to invest in a variety of stocks, bonds, and treasuries—but which ones? Target Date Funds make this a little easier for you. A TDF is basically a hands-off retirement account. You enter the age you want to retire and the TDF will automatically spread the money you put into this account across a wide variety of stocks, bonds, and treasuries.

Some of the recommended companies through which to do this are Vanguard, Fidelity, and T. Rowe Price.



Diversify your investments. If you choose a more hands-on approach to investing, it is important to diversify your portfolio to reduce risk. Diversifying means that you choose a variety of stocks, bonds, and treasuries in which to invest. You should make sure your investments are spread over a number of different companies and industries. This way, if one company or industry suffers a financial downturn, you will only lose a portion of your investment, not the whole thing.



Invest in your 401k. As mentioned above, investing in a 401k provided by your company is a good idea. There are a couple really good things about this option. First of all, most of the time, the money you put into a 401k is deferred on your taxes until you take it out of the account. Some 401ks are taxed before investing, however, so check with your employer to find out which one you have. Second, your employer will often match the amount of money in your 401k (up to a certain amount) so you are, essentially, getting free money just for investing.

You should invest in a company match 401k even if you are in debt. The return you receive on this type of investing is often more than what your debt is.

The amount of money your company will match often depends how much you invest in your 401k. Usually, you have to hit certain investment thresholds, which will then determine the percentage your company will match.



Invest in a Roth IRA. Another investment opportunity offered by many employers is a Roth IRA. In a Roth IRA, you pay taxes up front on your investment. Investing in a Roth IRA is an especially good idea for young people with low incomes, considering the tax rate will likely increase in their lifetime. This type of investment can be very helpful because it will provide you with a pot of money for your retirement that won’t shrink due to taxes.]















Understanding Why to Insure Your Investments.



Get property insurance. You should invest in property insurance to protect your home, which is often one of your biggest assets. Property insurance is actually required if you have a mortgage. This type of insurance will protect you from having to pay out-of-pocket for any major unforeseen home repairs.

If you rent, it is just as important to invest in renter’s insurance. Your belongings can add up to a significant investment and getting renter’s insurance will help protect you in the event of a burglary, fire, flood, or other disaster.



Buy life insurance. Getting life insurance is especially important if you have a family or are married. Life insurance makes sure your income (or at least part of it) is supplemented in the event that you pass away. This is important because your family could face very tough financial situations if they are unable to make up for the portion of income you brought to the table.



Get health insurance. Health insurance premiums can be a small price to pay if you find yourself sick or seriously injured. Medical bills alone can put you in serious debt if you don’t have some sort of insurance policy. In addition, you’ll likely miss a significant amount of work if you are seriously injured, leaving you no way to pay these bills.

Many employers offer health insurance to their employees at a discounted rate. Usually only full-time employees are eligible to receive health insurance through the company, but some companies may offer it to part-time employees as well.

Buying health insurance independently, without the help of an employer, can be expensive. However, it is worth investing in to make sure you are not crippled by debt in the event you become sick or injured.[28]



Buy automobile insurance. Finally, you should invest in automobile insurance. In fact, it is required of anyone who owns a car in the United States. Auto insurance helps cover the cost to repair your car after an accident and medical bills for you and others involved. A major car accident can put you in debt from car repairs and time off work if you’re injured. It is also possible your assets can be seized to help pay for the other driver’s medical bills if the accident is your fault. Having automobile insurance can help diffuse some of these costs and help keep you out of debt.















Working with a Financial Planner.



Start now. One of the most important things you can do for your personal finances is to start thinking about them and working on them early. It may seem like you have plenty of time to save for retirement, but you can actually lose a lot of money in interest if you wait too long. Make financial planning a regular part of your life—like going to the doctor—and get started as soon as possible.

Get your significant other involved. If you are planning a future together, make sure to include your significant other in your planning. Talking to your partner and including them in the process will ensure you are both on the same page with your spending and saving habits and allow you to develop a plan that meets both of your needs.



Be proactive. Some people assume that everything will work out in the long-run and ignore negative cues about their finances. If you do this, however, you could set yourself up for a major loss. Instead, think about how negative financial situations, like severe drops in the stock market, might affect your financial security and plan alternative options.



Plan out the details. Many people see saving for retirement as a race to reach a certain amount of savings before the date they retire. This approach can be misleading, however. Instead, think about the things you’ll need to pay for, like housing, healthcare, eldercare, hobbies, transportation, and so on. Do your best to figure out how much these products and services will cost you and how you’ll finance them.





Tips.

Figuring out how to handle your personal finances can be very confusing whether you’re a beginner or not. It is a good idea to consult a financial planner to help you decide how to best handle your money.

November 10, 2019

How to Get Money Quickly Without Borrowing It

How to Get Money Quickly Without Borrowing It.

It can be difficult to come up with cash at short notice for an emergency. Fewer and fewer people have secure jobs and savings accounts to rely on during tough times or unexpected circumstances. Fortunately, there are still ways to scrape together necessary funds quickly.

Method 1 Doing Odd Jobs In Your Neighborhood.
1. Advertise your services. Build your own website or post on online pages such as Craigslist.
Specify in your advertisement what types of jobs you can do (home repairs, plumbing, electrical work, yard work, cleaning etc.), what you charge, and when you are available.
Provide multiple ways to contact you. If you can be reached by both phone and email, you might have a better chance at getting work.
2. Build your potential customer base. Speak to nearby friends and neighbors first.
Tell them that you need money and are willing to do light housework and yard work in the area.
Ask them to tell their friends and neighbors too, and recommend your services.
Your neighbors and friends may very well end up being your first customers. Be sure to tell them to spread the word that you do good work when you're finished.
3. Charge reasonable rates for your work. The main reason someone might consider hiring you over a professional service is that you're a lot less expensive.
Ask for a small amount of money that you can live with, rather than a large sum.
A good way to estimate what to ask for is to set a low hourly rate, say $8 or $10. Also, prorate your work to the nearest half hour. In other words, if you work for 6 hours and 33 minutes, just bill for 6 hours and 30 minutes. That keeps things simple.
4. Act professionally. Dress in clean clothes and smile when people answer their doors. Offer a handshake when you introduce yourself. Make eye contact.
Be sure to describe exactly what types of services you offer, whether its small home maintenance, yard work, cleaning etc.
Be willing to do jobs on weekends and evenings.
Return calls and job offers quickly and promptly.
5. Bring your own equipment. If you have specialized equipment you can bring, such as a toolbox for house repairs or a rake for leaves and grass, bring it with you.
Heavier items like ladders and lawnmowers can be left at home, but be sure to mention you have access to your own.
Don't accept jobs that you don't have the equipment to complete.

Method 2 Finding Short-Term Jobs.
1. Think about what your skills are. You might be able to find a short term job more easily if you have certain skills.
Bookkeeping and accounting jobs are often short term or temporary. If you have skills as a bookkeeper, you can often find a well paying position on a short-term basis.
Offices and human resource departments often look for part-time workers when they have an increase in paperwork or filing.
If you have tech skills, some firms or websites may hire on a short-term basis.
2. Check the local listings for short-term jobs. The online marketplace Craigslist features an “ETC” category under the Jobs heading local newspapers also often carry advertisements for quick, temporary work. Check everywhere you can and think about what you're able to do.
Take a job as a sign waver. All kinds of businesses hire sign wavers to stand outside for 8 or 10 hours and wave a large sign at passing cars. Used car lots, payday loan stores, and furniture stores in particular use this marketing technique and often pay in cash at the end of the day.
Help out with event work. Browse listings for people and small businesses who need help setting up, running, and tearing down booths for local events like farmer's markets and street fairs. These jobs often start early in the day and often pay the same day. Be prepared to do anything from construction to running a booth.
3. Participate in studies or surveys. This isn't a reliable way to make a lot of money, but if you're just a few dollars short, it can make up the difference. A Google search will help you find some online surveys.
Be sure you qualify for the study before you apply. For example, you won't want to apply for a study that is looking at the effects of smoking if you aren't a smoker.
Apply in person to expedite the process. In the case of some surveys, you'll be able to show up and do a paid survey right then and there. Studies usually last longer, but may provide compensation before the end of the study period.
4. Join a temp agency. Temporary work agencies place thousands of employees with daily work. If you have specialized work skills or previous experience in a field, you might have very good luck temping. There are a number of tips to help you get started with an agency.
Visit the agency. Tell them you want to work, and follow their instructions. There will usually be an application to fill out, followed by an interview where you go over your work history and qualifications.
Bring a resume with you. It will help the temp agency sort out what types of jobs you are qualified for.
Dress for an office environment. Business dress shows you are looking to be successful and will fit in a professional setting.
Meet your agent. He or she will work to find jobs for you every day. Try to be pleasant and get along with your agent; it could help your chances some.
Take any job you're offered. Temp agencies can't work miracles; they don't find work for every temp employee every day. If your agent finds work that you can do and offers it to you, take it immediately.
Sometimes, a temp in a longer-term contract can get hired on as a regular employee, so always treat it like a “real” job.

Method 3 Selling and Reselling.
1. Think about selling your car. This isn't a practical step for many people, but if you're lucky enough to live somewhere you don't need a car to get to work or the grocery store, you're sitting on a huge mound of cash in the driveway. There are some helpful steps to complete this process.
Gather your car's information. Find the title and registration, maintenance receipts and records, and a car history report. Also know the features of your car (CD Player, seat controls etc.)
Having regular receipts and records for oil changes and routine maintenance can show that your car was well cared for and can help you get a good offer.
Set a price for your car. To find the right price, you can look up the value of your car with Kelly Blue Book or look in the classifieds section of your newspaper to see what price cars like yours are selling for.
Advertise the car online and in newspapers. In your ad specify the model and year of the car, its features, its true condition (if it is in need of repairs be honest), your asking price, and acceptable forms of payment. Include lots of photos and multiple ways to contact you.
2. Have a yard sale. Advertise it for free on Craigslist, or for a small fee in the local newspaper. Clean and organize everything you intend to sell, and lay it out in front of your house or apartment on the morning of the day of the sale.
This approach works best for people who haven't previously sold things for cash out of necessity, and still have a lot of items to sell. People are more interested in bigger yard sales.
Price everything slightly high, but be willing to haggle down. Most yard sale items will reasonably sell for 1/3 to 1/2 of the original price, if the item is in good condition.
Keep your prices in $.25 intervals to keep change handling simple.
To make up the difference, try to feature some bigger items, like furniture and exercise equipment, that you can get a bigger chunk of change for. Place these items at the end of the driveway or yard to lure in buyers.
Many neighborhoods have a coordinated yard-sale day. It is a good idea to hold your yard sale during this event because it will draw in a large crown of potential buyers.
3. Sell your belongings online. There are two basic ways to do this if you need to turn a quick profit: Craigslist and eBay.
On Craigslist, post your item for sale in the appropriate section of the site. Be sure to post pictures if you can; people often don't bother with listings that don't have photos attached.
Use the word “firm” if you refuse to haggle on the price; use “OBO” to indicate you might be willing to go down on it a bit.
On eBay, you can set various time and purchase options, which may have fees attached to them.
If you choose to sell it at a fixed price with the Buy It Now option, you will have to pay a flat fee of a couple dollars in addition to a percentage of the sale price. Buy It Now allows you to control your selling price.
If you choose to sell your item at auction, choose a period of time the auction will be active. Sunday evening is said to be the most lucrative night of the week for auctions by frequent eBay sellers.
4. Sell to a pawn shop. Pawn brokers are people who will pay cash for just about anything you own that isn't disposable or perishable. Pawn brokers tend to pay very low amounts and won't haggle.
Bring your items with you to the pawn shop. Most pawn shops keep short hours for security reasons, so go before 4PM to be sure you get in.
Decide whether or not to accept the offer. Expect to get $60 for a $500 bicycle, and on down the line proportionally. In most cases, you should only visit a pawn shop if you absolutely need money right now and have no other options available as you won't get a good value on your items.
5. Resell to collectors. There are collector's markets for just about everything with any cultural significance, from commemorative plates to video games and old toys. If you arm yourself with knowledge, you can make a killing buying items for cheap and selling them to collectors at a profit.
Specialize in one type of collectible. You might specialize in retro toys or specialized glassware. Start by seeing what collectibles you already own and build from there.
Know your subject. Do the research to find out what an item in good condition looks like and is worth. Know which items are commonplace or super rare. Rare items will get a better price.
Visit cheap places. Yard sales and thrift shops are your best friends as a collectables reseller.
Use computer resources. Websites that specialize in collectibles can help you to gauge what collectibles are selling for in your area.
Sell online. You'll often get a better price online than you will selling to a local collector, and this can widen your customer base.
Get to know dealers and insiders. These people can be great connections for you to advertise your collectibles and get to know vendors who can help you sell your items.

Method 4 Using Unorthodox Approaches.
1. Perform on the street. If you're lucky enough to own an instrument and talented enough, busking is the art of musical street performance. A good busker in a busy spot can make a nice little pile of cash in an hour or two of playing. The following are some helpful tips for busking.
Get permission. Some cities and communities have ordinances that require a permit or fee for street performance.
Choose a good location. Avoid areas where there are other street performers but still have high traffic. Choose busy downtown areas in safe locations as a starter.
Choose your repertoire carefully. A good time of year to busk is during the holiday season. Jazz and popular music are also successful themes.
Be polite to your audience. Be warm and friendly with everyone who crosses your path. Smile and nod whenever you make eye contact with anyone.
2. Collect scrap metal. Iron, steel, and especially copper can be sold to scrapyards by the pound. To make a significant amount of profit, you'll need to bring in quite a few pounds, so be sure you have a vehicle with space for the metal.
Look around abandoned lots and derelict buildings for pipes and metal fixtures. Junk bins outside tech and office firms may have bunches of wire or other components that can be sold as scrap.
Be very careful if you collect scrap. Wear heavy gloves, bring a partner, and don't hunt for scrap at night.
Don't steal or strip metal from anything that's still in use.
Search neighborhoods in the morning before garbage collection. You can often find items that can be used for scrap or fixed up and sold.
3. Go rock hounding. There are guidebooks available in most areas that show where valuable rocks can be found. Fossils, geodes, and semi-precious gemstones are all widely available in some areas. Keep in mind though that this may take time to find a collection and might not be a fast solution to your money problem.
Learn different gemstone grades. If you're hounding for semi-precious gems, remember that coloration and size can sometimes make them quite valuable.
Bring a shovel or spade, gloves, a hat, and a pail or bucket. Very often, to find the better-quality rocks and fossils, you'll have to dig down into the ground a little bit. Be sure this is legal where you are; most places marked in a guidebook should allow it.
Be careful to stay off of private property, including mining claims.
Sell your haul to a specialty store. You won't get a whole lot, most of the time, but it's next to impossible to sell raw stones online.
4. Sell plastic bottles for money. It's possible to collect bottles from other people's recycling and sell them for money.
You'll have to collect quite a few of them before you can make a profit, so be prepared to put some effort into this method.
You'll also have to find a national recycling buyer that purchases plastic bottles in bulk. A simple Google search should help you find companies that you can work with.
5. Sell you hair. Believe it or not, there is a market for your hair. If you have "virgin" (non-dyed or treated) lengthy hair, you can earn quite a bit of money for it.
Your hair is an outgrowth of what goes into you, so if you eat healthy and don't smoke, you can sell your hair for a premium.
An online tool exists to tell you how much your hair is worth.

Community Q&A.

Question : Where can I sell foreign coins?
Answer : A local coin dealer might be interested. Try Craigslist, too.
Question : Do people really buy hair?
Answer : Yes, they do! Some people don't have hair, so real-hair wigs are very popular.
Question : How do I sell old and rare postal stamps?
Answer : Find the value of the stamps by doing some research online first. Then, look for local auctions, swap meets, or even antique stores where you could find someone to purchase the stamps. There are also plenty of places online where you could sell them yourself once you've found the value, like eBay or Craigslist.
Question : How can you do this if you are a kid?
Answer : Start with scrap metal. It is easy to do and is free.

Warnings.

Don't steal, blackmail, or counterfeit to get money. If you think it's a lot of trouble being broke, wait until you're broke and standing in a courthouse on a felony charge.
You may have to pay income tax or other taxes on your earnings, especially if you are working a second, or even third job. Don't fall into the trap of getting paid cash-in-hand for more than you are legally allowed to earn as having to pay the Inland Revenue, IRS or other agency a large amount of back tax is not going to improve you financial situation in the long or short term.
Don't gamble if you need money. The odds are even at the very best (and only in craps betting); generally speaking, odds are that you'll lose. There's a reason people call the lottery an “idiot tax.”

June 04, 2020

how to protect your finances against market crashes

How to Protect Your Finances Against Market Crashes.

Economic expansions don't last forever, and eventually, the country will enter another recession. When it does, you need to protect your investments so that you can weather the storm. Assess how exposed you are to stocks and decide whether to diversify your portfolio with safer investments. Also clean up your balance sheet by reducing your debts, which will allow you to survive the recession that accompanies a stock market crash.

Method 1 Changing Your Investments.

1. Check your current investment allocation. You might have no idea what your retirement fund is currently invested in. If not, log into your account and print out the current allocation of investments, which should include the following:

stocks or stock mutual funds, bonds,real estate,money market accounts.

2. Identify why you fear a market crash. The economy goes up and down with some regularity, and when the market crashes stocks suddenly become cheaper to buy. For this reason, you might not want to diversify your portfolio. Instead, you can leave your investments as they are.

However, you might want to reduce your exposure to risk if you are nearing your retirement age or have just entered retirement. A major stock market crash could seriously cut the amount of money you have to live on.

Your tolerance for risk might also have changed. If so, then you can diversify your portfolio so that you are comfortable with your investment mix.

It’s impossible to predict exactly when the next recession will hit, so you shouldn’t move money in and out of the stock market hoping to get out just before things turn south. For example, it looked like the U.S. stock market was about to crash in late 2015. Since then, the Dow Jones Industrial Average has increased more than 20%.

3. Consider holding money in a savings account. The easiest way to protect your investments is to get out of stocks and move the money to savings accounts. Consider the following options:

High-yield online savings accounts. These accounts will only earn about 1-2% annually, but this amount is higher than most banks offer. Your cash is liquid, so you can access it if needed. Furthermore, your deposit will be protected by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 USD.

Money market accounts. These accounts are like bank accounts but with potentially higher returns. You can write checks against the money market account. Open with your bank or with a company like Scottrade or TD Ameritrade.

Certificates of Deposit. Banks and credit unions sell "CDs," which you can buy for a set sum. You are prohibited from accessing the money until the CD matures, but you will earn interest on the investment.

4. Invest in bonds. Bonds are debt. Companies, as well as governments, issue bonds to raise money, and bonds are a safer investment than stock. Consider putting more of your investment into bonds, such as the following:

Municipal bonds. State and local governments issue bonds to raise money, and in return the bonds are exempted from income taxes. You can typically earn 3% annually on bonds. They are a low-risk investment, unless the city government is on the verge of bankruptcy.

U.S. savings bonds. These bonds are very safe. With a Series I bond, you get a fixed interest rate, and your return is linked to inflation. With the Series EE bond, you earn an automatic rate of return each month.

Treasury Inflation Protected Securities (TIPS). The U.S. government offers a fixed interest rate as well as inflation protection that’s triggered every time inflation increases.

Image titled Protect Your Finances Against Market Crashes Step 5

5. Consider annuities. An annuity is a contract with an insurer or financial services company. You make a lump sum payment, and in return you are provided with a fixed sum of money for a specific amount of time. There are several varieties of annuities, which can protect your investments in case of a market crash. For example, fixed-indexed annuities can protect your principal.

Annuities are safer than stocks, but they do have some risks. For example, the company you bought the annuity from could go bankrupt. In that situation, you will no longer be paid. You can protect yourself by doing thorough research and only buying an annuity from a company with the highest rating.

The value of an annuity can also erode with inflation, though you can buy annuities that will protect against inflation.

6. Find safer stocks. Not all companies are the same, and some are safer investments in a down economy than others. For example, you might want to get rid of low-grade stock, such as companies with a lot of debt or businesses in speculative fields like biotech that have not yet produced strong profits. In a market crash, the value of these companies will decline.

Instead, look to high-quality stocks which tend to hold up better. These companies have stable earnings and low debt.

Also consider stocks that pay dividends. Check if you can invest in a dividend exchange-traded fund.

7. Change your contributions. If you’re not yet in retirement, you should consider changing the allocation of your retirement contributions for the last few years before you stop working. Direct your contributions toward safer investments, such as those discussed above.

Changing your contributions will not change the allocation of investments already in your portfolio, so consider diversifying it.

8. Diversify your portfolio. When the market is good, riskier investments such as stocks perform well. But when the market crashes, you can expect stocks to perform poorly. Accordingly, you might want to diversity your portfolio and move some money out of stocks.

How much to move is up to you. However, you don’t have to get out of stocks entirely. Instead, you could reduce stocks to 30% of your portfolio, and have the other 70% in bonds or another safe investment. In a market crash, your losses will remain in the single digits, and you can move back into stocks after the market improves.

If you don’t know what to do, meet with a financial planner who can help you assess your risk tolerance and come up with a plan suited to your needs.

Method 2 Reducing Your Debt.

1. Identify all of your debts. In a market crash, you’ll need as much cash as possible to pay for living expenses. Accordingly, you want to decrease your debt load as much as possible now. Begin by identifying every debt you have, including any of the following:

student loan debt, credit card debt, home mortgage,car loan,personal loans.

2. Prioritize your debts. You need to make the minimum monthly payments on all debts. However, you should direct extra money to the debts you want to pay off the most. Accordingly, sit down and prioritize your debts.

For example, if you lose your job, then you can often delay payments on student loans, using either forbearance or deferment. Accordingly, you might not want to pay down your student loans first but instead focus on credit cards, which probably have a higher interest rate.

However, some debts are tied to an asset. For example, you can lose your car or home if you don’t make payment. Paying these debts off early could be a wise choice.

3. Create a budget. To free up money to contribute to debt payments, you’ll need to budget. Identify the following:

Your fixed expenses. These are bills that don’t change much month to month. Generally, fixed expenses are also for necessities, such as your rent or mortgage, health insurance premiums, car payments, and other debts.

Your discretionary spending. You can track your discretionary spending over the course of one or two months. Write down what you buy every day and note the price. Alternately, you can buy everything with a debit or credit card and then look at your monthly statement.

Reduce discretionary spending. You need your income to exceed your discretionary spending. To free up as much money as possible, reduce discretionary spending to the bare minimum by giving up gym memberships and cable TV. You can also cut out vacations, entertainment expenses, and meals in restaurants.

4. Refinance your mortgage. Mortgage rates are still low. If you have a high APR, then consider refinancing into a loan with a lower one. Avoid spending the money that you save and instead funnel it toward debt repayment.

To investigate a mortgage refinance, contact your current lender to check what rate they can offer you. Then compare their rates to others on the market.

5. Tackle credit card debt. You want a stable balance sheet when the market crashes, so you should reduce your debts as much as possible. In particular, you should pay down high-interest credit card debt. Identify a method of repayment so that you can wipe out these debts as soon as possible:

Debt avalanche. You pay the minimum monthly payment on all credit cards. Then you contribute extra money to the debt with the highest interest rate. Once you pay off that card, focus on the debt with the second highest interest rate.

Debt snowball. Another method is to pay the minimum on your monthly debts but then use extra to pay off the card with the smallest balance first. The debt snowball method is more expensive than the debt avalanche, but it can give you momentum.

Debt snowflake. This method is ideal for people who can’t budget extra money to pay down debt. Instead, you try to save a little bit of money every day and make multiple monthly payments to slowly chip away at your debt.

Method 3 Preparing for Emergencies.

1. Build an emergency fund. You’ll need money in case you lose your job or if any kind of emergency springs up. Generally, you should save at least six months of expenses. If possible, save up to twelve months of expenses.

Put money toward your emergency fund every month, even if that means you pay off debts more slowly.

If you are a retiree, then you should try to have two years of expenses saved. When the market declines, you should live off your savings instead of drawing income from your investments.

2. Buy insurance. Insurance protects you from any unforeseen accidents that will hammer you financially. In an economic downturn, you’ll need all the money you can get, and insurance will provided valuable protection in case an accident strikes. Consider the following types of insurance:

Health insurance. If your employer doesn’t offer it, you can buy it on the government exchanges. Depending on your income, you might quality for a premium subsidy and/or help with out-of-pocket expenses.

Automobile insurance. Your insurance will pay if you injure someone in an accident. Depending on the insurance, you might also be covered if someone without coverage injures you.

Disability insurance. If you are disabled before you reach retirement, you’ll need income to support you. Your employer probably offers disability insurance. If not, you can shop on your own.

Life Insurance. You can replace the income of a working spouse with a life insurance policy. Life insurance is particularly important if you have young children. Calculate how much life insurance you need at lifehappens.org.

Homeowner’s insurance. Your homeowner’s policy covers injuries that occur on your property, as well as any structural damage caused by natural disasters and other accidents.

3. Assess the stability of your job. In a market crash, many jobs will be wiped out as employers are forced to lay off workers. You need to assess whether your job is stable enough to survive a recession, or whether you should plan on getting a different job.

Look at how many people your employer laid off during the last recession. Were only a few let go? If so, your job might be secure. However, if your employer engaged in mass layoffs, then there’s no reason to assume it won’t happen again.

You can also pick up some freelance or part-time work now. That way, if the market crashes, you’ll still have some income coming in.

Tips.

Consult with a personal financial counselor to help plan, protect, and control how your finances and money in the future.

January 18, 2020