Saving
There are many devices for saving, and which one you choose depends upon your risk tolerance and when you will want to use your money. If you have either a low risk tolerance, or think you’ll need the money within a five-year period (maybe a house down payment or educational expenses), then you should stick with savings accounts or CDs. Open a savings account separate from your emergency fund, and contribute the amount you need to meet your goals. Follow the motto “pay yourself first” – before the money hits your checking account and can be spent on everyday expenses, transfer it over to your savings account and keep it out of sight.
If you have a higher risk tolerance, and are investing for the future, investing in stocks and bonds may be the way to go. First, check with your employer to see if they have a 401(k) matching program – it’s free money! Once you set up your 401(k), your company may provide you with a financial manager. Don’t trust just anyone, however, and make sure you get references and track record information for your advisor before you entrust your money to them.
If you do not work for a company that offers any investment services, you can begin to invest on your own. With low commission brokerages becoming the norm, it is easier to begin investing with smaller amounts of money than it was before. Generally, you should not invest in individual stocks if you have under $10,000 to invest, but you can still buy mutual funds, which offer returns similar to the overall stock market. If you’re beginning to invest on your own, talk to a brokerage like Charles Schwab or Fidelity. If you have a comfortable understanding of markets and want to pick your own stocks, trading platforms like TD Ameritrade or E*Trade make it easy an inexpensive to manage your own stock portfolio.
To be sure, it’s hard to get everything straight when it comes to finances. But don’t get discouraged! With an understanding of financial basics and a sense of financial priorities, you will be well-equipped to handle your money.
For questions email Nick at nick (AT) moneyinenglish (DOT) com with money questions.
If this article is on the basics of saving money, why not suggest buying something diversified with super low costs from Vanguard, and maxing out your Roth IRA? Very simple to do and likely to be more profitable than most other approaches.