Investments and money issues can be confusing. Ignorance or indifference to money matters, unfortunately, can lead to financial disaster. This is an overview of some basic tips for those readers in the US.
Pay all credit cards off in full
It absolutely makes no sense to place money into investments that yield 5% or 6% only, when the credit card interest alone can range from 10% to 21%. Interest isn't tax deductible and what you thought was a bargain, will become very expensive once the interest payments are factored into the equation. Perhaps consider using a home equity line of credit for the deductibility of the interest or to save for whatever it is you need to purchase. Pay these off first!
Maximize your pension or IRA deductions
By doing this you will be able to achieve 2 advantages for yourself. Deducting the maximum amount allowable, ensures that you will have enought for retirement. Also the amount can be directly deducted from taxable income to lower your tax debt. You can always cut back contributions if you get into a money crunch, since you have total control over what you contribute.
Make a budget...
...and include yourself in it as one of the people who needs to get paid! Throwing one's paycheck into a checking account to pay the bills is a recipe for disaster. You need to know how much and on what you spend monthly. You need to set aside funds for these. In addition, set yourself up as a payee and a certain percentage of earnings, for your savings. By paying yourself, you will ensure that money will be provided for a rainy day.
Have emergency funds available
Easier said than done but it's always best to have a small stash of savings set aside for those unplanned expenses. Repairs, changes to your work situation or emergency requirements can all be financially crippling if you don't have any money set aside. Try to be vigilant in saving these funds when you're in a job, so that if the worst happens, you're prepared.
Get an accountant
Consult with your accountant to see how you can reduce your tax liability. Your accountant can suggest ways to reduce your taxes legally, allowing you to keep more of your hard earned money to yourself.
INVESTMENTS
Do not invest in anything you don't understand.Before sinking a penny into an investment take the time to read about it. You need to know what you're getting into, in order that you can make proper educated decisions. Read annual reports, books or periodicals. Or, seek out the services of a broker or financial planner to help guide you into the proper investment vehicles.
Diversify
Do not put all your funds into one investment. Make sure that money is spread out over several different types, such as stocks and bonds. Then make sure that you diversify the stocks into different categories such as small and large domestic company stocks, as well as foreign stocks. The same goes with bonds. Diversify into different types. This ensures that if one area falters, others won't be affected. You'll be able to take advantage of the ups and downs of each investment.
Are mutual funds are better than individual stocks? This depends on how much money, knowledge and how much risk you're willing to take. For the beginner investor, mutual funds areprofessionally managed and contain thousands of stocks. This is important, because if a stock or two go bankrupt, it won't affect the overall integrity of the fund.
With an individual stock, bankruptcy usually signifies total loss of investment. If you didn't want to bother with diversifying and there was only one mutual fund you wanted to invest in, then an S & P 500 fund would the best because it beats 80% of all other professionally managed mutual funds. Costs are low, since very little research goes into this type of fund. The 500 stocks represent the biggest and most successful stocks on the market today, and the S & P funds generally don't stray from these companies.
Inheritance
If you get a large inheritance or windfall, seek professional advice! When dealing with large amounts of money, it may be more prudent to buy individual bonds rathar than bond mutual funds. Tax implications may be involved and a discussion on asset protection is prudent. you should consult your accountant, a financial planner, broker and potentially a lawyer.
An informed investor makes the best investor.
