After the bills are paid, and the groceries are purchased, what should you do with the remaining money?
First of all, congratulations on having extra money! It would be rewarding to splurge on something that you?ve had your eye on, or to take the family out for a nice dinner. Treating yourself is fine and even encouraged every once-in-awhile, but you also need to think about your future. You may not always be so lucky to have abundant funds. It?s important to build yourself a healthy investment portfolio that can stand the ever-turning tides that makeup the financial market.
There are several investment opportunities that vary in risk, return, time-frame, and required funds, let?s take a look at some of the most common personal finance options.
Savings accounts are one of the most common places for families to put their money. It?s extremely accessible; you receive a small interest rate, and there is very little risk involved. However, the interest rates are almost negligible, and they certainly don?t keep up with inflation rates. Some people question whether it?s worth it to let money sit in a savings account, when it could be earning money in other investments.
Bonds are essentially IOUs that you lend to the government, a corporation, a federal entity, or municipality. Bonds are typically low-risk, low-return investments. You must typically keep your money tied up for a certain period (starting at about five years) to get the full return.
A stock is a share in the company. If you own stock in a company, you do well when it does well (or, more accurately, you do well when it does better than expected). Stocks can earn very high returns; they can also lose you money. There is no formula on how to make money by investing in stocks. It is a risky investment but your assets are relatively easy to liquidate if necessary.
About 20 years ago, the Australian government developed and implemented a retirement savings policy called ?superannuation.? This policy requires companies to pay 9% of employees? salaries into a retirement savings account. Residents are also allowed to contribute their funds into their accounts (up to a limit). The amount is taxed when deposited, and withdrawn tax-free after retirement. This is similar to the popular Roth IRA in America.
Property investments range from simple to very complex. You can simply buy a property and rent it out to a tenant, or invest with a property developer. Even the simplest option (renting) can get complicated with difficult tenants. You must make sure leases and other agreements have been drafted and reviewed by the appropriate legal resources, you may need to perform background checks, you may need to evict tenants and be familiar with rights of both the property owner and tenant.
Property is usually regarded as a very good investment for those that do the necessary research. Your assets aren?t easily liquidated, and your return depends on how reliable your tenants are, what the housing market is like, unforeseen disasters, etc. Investing in property also takes a larger initial investment (as opposed to a $100 bond).
Remember, your personal finance choices depend on your financial goals and your risk tolerance. Just keep in mind that emergencies happen and having some money saved up to get you through difficult financial times make life easier.