Get Financially Active! Let Your Money Work For You!
Money and financial matters are probably two of the most important things that a person should consider in his or her life. There is no doubt that money plays a vital role in one’s life, especially in terms of surviving. Money is needed to buy the basic necessities that a person needs. It is used everyday by companies for business transactions. It is therefore a must that people know how to handle their money and know where to put it so that they would never have to experienced financial problems in the future. According to Graham & Dodd (2008, p.
106), “an investment operation is one which, upon analysis, promises safety of principal and satisfactory return. ” More simply, investment “involves the commitment of resources which have been saved or put away from current consumption of resources which have been saved or put away from current consumption in the hope that some benefits will accrue in future” (Kaptan, 2001, p. 1). Investing is important because this would ensure a person that he or she would have something to pull out in the future in case there is a need to.
People have to realize that nothing lasts forever no matter how much they are earning at this time. It is never too late to start but it is recommended to start early. It is also recommended to spread one’s money over different types of investments to reduce the risk. There are several ways on how to invest one’s money, which includes the 401(k) plan, putting up an Individual Retirement Account (IRA), or investing in the stock market. “A 401(k) plan is a voluntary retirement plan that companies may offer to their workers.
Employees set aside a percentage of their wages before taxes, up to a certain maximum, and invest those funds within the retirement plan” (Orman, 2008, p. 313). The amount that a person contributes differs from one company to another. These contributions are also not taxed until the money is withdrawn from the employee’s account. If the employee decides to leave his or her job, the account remains active for the rest of his or her life but the contributions must be withdrawn when he or she reaches the age of 70.
Another investment option is the Individual Retirement Account. This has numerous types including contributory IRAs, rollover IRAs, SEP IRAs, SIMPLE IRAs, and Roth IRAs (Slesnick & Suttle, 2007, p. 12). Contributory IRAs include the individual retirement account or individual retirement annuity “to which any person with earnings from employment may contribute” (Slesnick & Suttle, 2007, p. 12). Rollover IRAs, on the other hand, “are used to receive assets distributed from other retirement plans” (Slesnick & Suttle, 2007, p. 12).
The rules of SEPs and SIMPLE IRAs are “quite similar to those of qualified plans” (Slesnick & Suttle, 2007, p. 12). “Finally, Roth IRAs combine the features of a regular IRA and a savings plan to produce a hybrid that adheres to its own set of rules” (Slesnick & Suttle, 2007, p. 12). It is important to note that IRAs can only be furnished with cash or its equivalents. However, rollovers, transfers, and conversions between IRAs and other retirement plans can include any asset. Still, there are some restrictions on what assets a person can put in his or her account.
Collectibles and life insurance are not allowed to be held in an IRA. In contrast to the 401(k) plan, funds from an IRA account can be withdrawn without any penalties once the owner reaches the age of 59 and a half. The money taken out of the account, however, is still treated as a taxable income. The stock market is probably one of the most difficult things to understand when it comes to investment and financial matters. There are many people who want to get involved in this type of investment but do not know how or where to start, so they decide not to start at all.
“The United States has the greatest stock market in the world. There are more than 10,000 U. S. common stocks to choose from” (O’Neil, 2000, p. 104. ). The first thing to do when investing in the stock market is to get educated by reading about it, take seminars or classes, and review financial websites that offer information regarding the stock market. One should also know his or her goals, that is, they should be able to answer the question why they are doing this in the first place. It is also better to start in companies that the person is familiar with.
Mutual-fund companies are also recommended to get involved in. Brokers can help an individual handle his or her investments, which is why people need to look for brokers first. A person can determine which company to invest in in two ways: fundamental analysis and technical analysis. Fundamental analysis requires the person to browse through a company’s financial records that can be found in SEC filings. On the other hand, technical analysis refers to the studying of the price actions through the use of charts and numbers to forecast trends in the market.
Ultimately, one has to remember that “simply investing in the stock market requires some degree of optimism about the future, which is one of the biggest reasons that buyers of stocks are too optimistic far more than they are too pessimistic” (Dorsey & Mansueto, 2003, p. 153). These are only a few of the options available for individuals who want to invest their money for a better future. There are a lot of other options and one should research to determine the best option that would suit their needs and capabilities.
Researching makes one educated, which decreases the chances of losing his or her money. Money and all of one’s assets are important either because this was passed down through generations or because he or she worked hard to earn these things. It would then be a great loss if it were to go down the drain just because of one’s negligence. Becoming educated in financial matters can also be beneficial in that it can allow a person to make more money because he or she knows how to manage his or her financial resources.
Although there are other people who can do this, it is still important for an individual to have first-hand information regarding his or her money so that he or she is aware where it is going and how much is being spent and saved. People, especially younger ones, are more lax when it comes to managing their money. This is because they believe that they have all the time in the world to save. They enjoy the benefits of their money by travelling, shopping, or partying. After all, retirement is a long way ahead of them. However, starting early on when one has become stable in his or her employment is the best way to handle one’s money.
It is not bad to enjoy one’s hard-earned money but there comes a time when the spending days are over and saving for one’s future is necessary. The importance of saving for the future cannot be stressed enough. This will avoid bankruptcy and thousands of dollars in debt. It does not matter what type of investment a person involves him or herself in, as long as he or she makes sure that this is the best option for him or her. Beginning on an investment may be difficult for some, even frightening for others. There are risks in every investment option offered to the public.
The most difficult risk here is the risk of losing everything when the investment does not work out. However, if one does not choose to invest, the risk of not having anything at all in the future is even greater. This is why becoming educated regarding money matters is essential. People, especially young ones, should take time to think about their financial resources and their future, and research to determine the best investment option for them. References Dorsey, P. & Mansueto, J. (2003). The Five Rules for Successful Stock Investing: Morningstar’s Guide to Building Wealth and Winning in the Market.
New Jersey: John and Wiley Sons. Graham, B. & Dodd, D. (2008). Security Analysis: Sixth Edition, Foreword by Warren Buffett. New York: McGraw-Hill Professional. Kaptan, S. S. (2001). Investment Management. New Delhi: Sarup & Sons. O’Neil, W. J. (2000). 24 Essential Lessons for Investment Success. New York: McGraw-Hill Professional. Orman, S. (2008). The Road to Wealth: A Comprehensive Guide to Your Money: Everything You Need to Know in Good and Bad Times. New York: Riverhead Books. Slesnick, T. & Suttle, J. C. (2007). IRAs, 401(k)s, & Other Retirement Plans: Taking Your Money Out. Berkeley: Nolo.Sample Essay of EduBirdie.com