Financial Road Map- How to get where you want to go!
The first step on your financial journey is to create a 6 to 9 months “Emergency Fund” made up of what it will cost to life if you were to lose your source of income.
This should be put into a savings account that you can access at any time. You’r looking for access and safety of your money not profit.
Pay yourself first!
You should live on 90% or less of your income. From any source of income put aside at least 10% as a buffer beyond the amount in your Emergency Fund.
Why? Because SHIT happens and when it does you want to have some CASH available!
Good Debt vs. Bad Debt: An Overview
There certainly is an argument to be made that no debt is good debt, but borrowing money and taking on debt is the only way many people can afford to purchase big-ticket items like homes and cars. While such loans usually are justifiable and bring value to the person taking on the debt, there is another end of the spectrum that involves taking on debt through careless spending on a credit card.
Real estate, including homeownership. There is a variety of ways to make money in real estate. On the residential front, the simplest strategy often involves buying a house and living in it for a few decades before selling it at a profit. Residential real estate also can be used to generate income by taking in a boarder or renting out the entire residence. Commercial real estate also can be an excellent source of cash flow and capital gains for investors.
The stock market is the market of the greater FOOL!
The seller thinks the buyer is a fool for buying something the seller thinks will lose value while the Buyer thinks the seller is a fool for selling something he thinks will go up in value.
When Can You Invest
- First rule of investing is to only invest what you can afford to lose.
- This means you have paid off your credit card debt, created an emergency fund and have a cash buffer in the bank.
- Why do you need to do all these things first, it is because the market can be down when you need money and you will get far less than you put in
Investment vs Speculation
- Investing in the market requires a long term commitment of at least 5 years.
- Why 5 years? On average if you invest in the market long term 5 years should be enough time for you to recoup your losses.
- An investment can best be thought of as something that you have researched that promises safety of principal and a satisfactory return. Investment not meeting those requirements are considered speculation.
What are Stocks vs Bonds
Bonds vs. Stocks.
Bonds are debts while stocks are stakes of ownership in a company. … On the other hand, bonds often pay out a fixed interest rates that the entity pays the investor, out annual interest rates to investors while repaying the amount in full at a given time.The value of stocks is based on the profits and future prospects of a company as judged by the market. A stock can go up in value or down in value causing to make or lose money.
How to Reduce Risk
What Is Diversification?
Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio. A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt at limiting exposure to any single asset or risk. The rationale behind this technique is that a portfolio constructed of different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security.
The Basics of Diversification
Diversification strives to smooth out unsystematic risk events in a portfolio, so the positive performance of some investments neutralizes the negative performance of others. The benefits of diversification hold only if the securities in the portfolio are not perfectly correlated—that is, they respond differently, often in opposing ways, to market influences.
What are Mutual Funds
What Is a Mutual Fund
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund’s assets and attempt to produce capital gains or income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.
Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds invest in a vast number of securities, and performance is usually tracked as the change in the total market cap of the fund—derived by the aggregating performance of the underlying investments.
Taxable vs Tax Deferred
Taxable, Tax-Deferred, and Tax-Exempt
Generally speaking, investments can be taxable, tax-deferred, or tax-exempt. The first step toward tax-efficient investing is to determine how your investments are structured under the law:
- If the investment is taxable, the investor must pay taxes on the investment income in the year it was received. Taxable accounts include individual and joint investment accounts, bank accounts, and money market mutual funds.
- If the account is tax-deferred, the money is sheltered from taxation as long as it remains in the account. Traditional IRAs and 401(k) accounts are examples of tax-deferred savings.
- For tax-exempt accounts, such as municipal bonds, investors do not need to pay federal taxes even when the money is withdrawn.
Each has its advantages and disadvantages. As a rule of thumb, tax-efficient investments should be made in a taxable account, and investments that are not tax-efficient should be made in a tax-deferred or tax-exempt account. Granted, not everyone has both.
In this video I have tried to give you the first stepping stones to your financial future, it is now up to you to learn more and do the hard work that your financial future requires of you.
One day the old you will ask the young you what did you do with all the money we made during our work years.
Information provided in this video are for informational purposes only, not intended to provide tax or legal advice or serves as the basis for financial decisions. Your needs, objectives and experience will vary. Consult a qualified investment or tax professional regarding your individual situation.