The average for disposable personal income rose in February 2014, by 0.3 percent or $42.3 billion dollars according to the U.S. Bureau of Economic Analysis. This news would suggest that Americans have more money available to invest and put aside in to their respective rainy day funds. However, the rate of savings in this country is at the midpoint of other developed countries. What may be worse for the financial security of the nation, is those individuals with higher personal incomes and wealth spend more and save less.
Understanding how investing works, and why it is important to incorporate into your financial life, will help you yield the best gift that you can give yourself: a more secure financial future. Making your money work for you by foregoing expensive purchases and frivolous buys and focusing on financing you future needs will result in you having the money you need, when you need it, to make easier such needs as retirement, funding a child’s college education, and purchasing a home.
Understanding Investments and the Cost of Not Investing
Inflation means that one dollar today will be worth less in the future, once you factor in inflation. Inflation works to effectively erode the purchasing power of your money, making it worth less over time. Put in other words, the amount of goods and services that a dollar can buy today will be less in the future. This of course should be of no surprise to you. Each year that you work, you expect (or anticipate) that you will receive a raise that is at least equal to the cost of living, a measure of inflation. As prices go up if your salary does not increase, the amount of goods and services you buy will become more expensive.
Investing is a good way to help your money grow at a rate that is in line with inflation. Unfortunately, the approach of many Americans is to invest results in low risk ventures, foregoing potentially higher returns by taking on more risk. What is a better place for your money, an investment in a safe, guaranteed U.S. government bond or newly launched tech stock? The investment choice you make says a lot about your investment style and aversion to risk. Gaining a better understanding of how investing works and how to take appropriate risks will only benefit you in the long-run.
Paying Yourself First
There is an old expression in investing circles that goes you have to pay yourself first before you pay others. What this refers to is the process of accumulating wealth by setting aside some predetermined amount of what you earn on a periodic and consistent basis. This set aside should be placed in a structured portfolio of different types of investment assets designed to meet your short, medium, and long range investment goals and objectives.Begin with a Plan
Investing starts with a plan – begin with the end in mind. This is accomplished by creating a financial plan to act as a blueprint. This plan will help you clarify your goals and give you a vision of what may come of your efforts through a systematic and disciplined investment program. Without a plan, it is too easy to become distracted and either abandon the plan when the market is more volatile, or lose focus and jump between investments and miss on potential returns. Establish a plan and begin the process of paying yourself in order to reap bigger gifts in the future.
This article was written by Richard Craft, an MBA student who hopes to help you with your finances. He writes this on behalf of US Emerald Energy, your number one choice when looking for help with learning how to invest in oil wells. Check out their website today and see how they can help you!