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7 Practical Tips For Young Investors

7 Practical Tips For Young Investors

Time is an investor’s closest friend; with good resources and appropriate skills, the more time you have, logically, the more you are going to earn. The inflation is growing at an increasing rate, and markets are becoming more unpredictable every day. These conditions are indeed getting worse with the passage of time. Therefore, investment is a decent option to build a nest egg for your future. For young investors this is not only a good way to accumulate their wealth in future, but young investors can also supplement their income; save for a house; and/or save for college.

There are several investment options open to a young investor, for instance, saving in a back account, buying common stock, real estate, stock mutual funds, and short-term Certificate of Deposits. Each kind of option will have its own benefits and demerits; it depends on the investor’s purpose.

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For example, if you are saving for your retirement and your age is 25 and you start with a $300 regular monthly deposit earning 9% annual rate for the next 40 years, till your retirement age of 65, you will accumulate approximately $1,420,000.

Therefore there are several key steps to be taken into account when investing. Here are 7 tips for young investors saving for the future:

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1. Begin your investing activities as early as possible

The earlier you start investing in your life the less financial burdens you will have in the future. For example, spouse and kids expenses, mortgages etc. will come at a later point in your life in your late 20’s or 30’s. Hence, you can easily make a regular substantial monthly payment in the initial years of your youth. Investing early will also have more interest compounding, meaning you can invest in high risk – high return stocks.

2. Learn and educate yourself with the entire process

It’s essential to be familiar with the market, and understand the business you’re investing in. The example given in the beginning, $1.42 million may look a huge sum but its future value maybe equivalent to that of $40000 of today. Therefore for a couple that wants to use that money after their retirement for another 20 years or so will not benefit much. Therefore, it is essential that you know the process; the costs involved in the stocks and equity options.

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3. Choosing between Stocks and Bonds

Young investors find it difficult to choose between bonds and stocks. Stocks are more risky but have a higher return than bonds in the long term. According to NBC News, in the 75 years from 1931 through 2005, large U.S. stocks earned annualized returns of 10.5 percent. That means, an investment of just $1 grew to $1,787. In the same 75 years, long-term U.S. government bonds earned returns of 5.5 percent. That meant an investment of $1 grew to $55.45. But bonds do have an advantage over stocks: the promise of payment. Where a stock may not have any form of payout in the future.

4. Learn to save rather than spend

To be an investor, you need money. To have money you need to save rather than spend. This advice is the most obvious one given out by top business professionals. Hence without ado, to be a successful investor you must do something that nobody in the world wants you to do: save some of your money instead of spending it.

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5. Diversify your portfolio

Diversifying you portfolio means you must at all-time maintain a portfolio that is composed of all kinds of assets: from high risk to medium risk to low risk. The medium and low risk asset compensates the high risk one and the aggregate returns are generally higher than a single asset portfolio. The wise decision to make is to re-invest your returns to earn greater returns, rather than spend those returns. For an investor, this is the best way to prevent a massive setback. Numerous studies have determined that asset allocation is the most important aspect affecting performance and volatility of your investment. In fact, 91% of the portfolio return is based on asset allocation, just 2% on market timing, 5% on stock selection and 2% on other factors.

6. Manage your savings and your debts

Some people make a bad habit of spending money based on future expected inflows. This is clearly a mistake, relying on a raise in income that has not yet been confirmed. Therefore, always choose to spend your money based on your actual and current financial state as this can prevent some serious credit crunch issues in the future and spare extra money for investments.

7. Get to know the taxes and inflation

Mostly Investors forget how much inflation and taxation can affect their returns. Inflation will impact your real returns; if inflation is high real returns will be low. The future inflation rate will also impact your future earnings. For example, if you have earned a return of 21% in a year on your portfolio and the inflation is 17% for the year, you have actually earned 4%. Therefore, inflation affects returns badly.  There are asset options that are either have a tax liability or are a tax- deferred account. Make sure you know your tax policy and that a tax-deferred account will build wealth faster than a tax-liability account.

Featured photo credit: www.ladailypost.com via ladailypost.com

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Tayyab Babar

Tayyab is a PR/Marketing consultant. He writes about work, productivity and tech tips at Lifehack.

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Published on January 8, 2021

How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

How To Pay Off Credit Card Debt Fast: 7 Powerful Tips

Ever wondered whether your credit card debt is the reason you’re in a bad financial situation? You can’t enjoy any fun activities because a good chunk of your money goes toward debt payment. Heck, you’re even behind on some of your monthly bills.

The effects of clumsy debt management are too many to list here. This guide is going to help you discover how to pay off credit card debt fast and start chasing your financial goals.

Debt problems are the last thing anyone wants to encounter. But things can get out of hand when all the “little debts” you take accumulate in interests.

What if you knew some simple and proven ways to be debt-free quickly? Implementing them would mean better financial health for you. It becomes possible to free up cash for your “wants.” These include taking a trip or buying something you’ve always desired. All that while paying your bills on time!

Let’s not wait any longer. Here are 7 powerful tips for paying off credit card debt fast:

1. Pay More Than the Minimum Credit Card Payments

Many people only pay the monthly minimum on their credit cards. Truly, that’s the right amount for staying on good terms with your credit card company. But you need a different approach if you’re looking to achieve financial independence within a short time.[1]

Most of your payments go toward interest costs when you only pay the minimum amount. A substantial sum of your balance remains standing. As a result, it becomes more expensive to eliminate your debts.

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You don’t want to wait more than 10 years to get rid of debt while it’s possible to do it sooner. All you have to do is double that $100 minimum payment to $200 or go higher.

The good thing is that minimum credit card payments are affordable in most cases. By paying a higher amount, you reduce your interest costs, lessen your borrowing period, and boost your credit score.

2. Start With High-Interest Credit Card Debt

If you have more than one credit card debt, prioritize putting the extra money toward the ones with the highest interests. This debt pay-off strategy, known as the debt avalanche method, is essential for being debt-free quickly.[2]

First, you need to list down all the credit card debts you have in the order of their interest rates. Next, you choose the one with the highest interest and pay a significant amount toward it each month. It can be an amount twice or even thrice larger than the minimum payment.

At the same time, you make monthly minimum payments on the other debts. Their interest charges won’t be as costly as that of the first debt on your list. You only move on to the next high-interest debt after the first one is gone. Remember that your focus is on the interest rates and not the balances.

3. Revisit Your Budget

Budgeting is useful for tracking your financial moves. Once you create a budget, some tweaks along the way can make it work for you better. One situation that requires you to revisit your budget is when you’re struggling with debts. It might hurt a bit to slash some expenses. But you also don’t want to miss out on achieving financial freedom in the long run.

You can reduce some variable expenses to free up more cash for credit card debt payments. They’re the ones that change from time to time. Some examples are groceries, fuel, and clothing.

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Other opportunities for cutting down your spending lie in non-essential expenses. Instead of dining out all the time, you can cook at home more to save money. You can also share some subscriptions with friends and pay a fraction of the cost.

If you’re determined enough, you can eliminate all your unnecessary expenses and focus on paying off your credit card debt first.

4. Avoid Using Your Credit Cards

Do you want to know how to pay off credit card debt with a low income? One simple way is to stop using them. Having your credit cards everywhere you go means that you’ll be more tempted to buy unnecessary stuff. In this case, you spend money that you don’t really own and get deeper into debt.

The quickest fix to stop the debt build-up is spending with cash. You’ll be more aware of everything you can afford at any particular time. If you decide to keep one or two cards to ease the transition, always make wise choices. For instance, only use them when experiencing financial difficulties.

It’s best to categorize your fun activities under “discretionary spending” in your budget. This way, you won’t need more debt to kill your boredom. By halting your credit debt from accumulating, it’s easy to pay down what you already owe and be happy with the progress.

5. Start a Side Hustle to Boost Your Income

You’re probably turning away a lot of money by not monetizing your skills. Everyone has something that they’re good at doing. And you can use that to generate extra income for attacking your credit card debt.

If you look around your neighborhood, you can find several side hustle opportunities. It can be pet sitting, tutoring, or lawn mowing. You can start an online business by offering services such as digital marketing, content creation, and web development. Such skills go in high demand on freelance sites and job boards.

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Finding clients on social media is also a good strategy to utilize your skills and make more money. Facebook groups, Quora Spaces, and subreddits are some places to look for side jobs. You only have to join a niche-specific platform, share your services, and respond to any opportunities.

It’s possible to learn a skill, practice it, and earn from it. Use the free resources online or purchase some e-courses to get started.

6. Sell Your Used Items for Extra Cash

Starting a side hustle isn’t the only way to generate extra money. You can turn unwanted items into cash for paying off credit card debt. Whether it’s an old TV, book, or furniture, there is always someone itching to buy your used stuff.

A garage sale, as much as it’s old-fashioned, is perfect for getting your neighbors and passers-by to buy from you. You keep all the money because there are no business permits or taxes involved. While you may not make much cash, it’s better than leaving your stuff to go defunct in your storage.

Other than that, you can sell your used stuff on online marketplaces. Facebook groups are great places to start if you want quick approvals and hence sales. You only have to ensure that your listing follows Facebook’s commerce policies.

When selling any pre-owned items online, ensure they’re in good shape to avoid problems with your buyers.

7. Know When to Seek Help With Your Debt

Asking for help with your credit card debt can be challenging to do. But letting it drown you is a road you don’t want to take. While you may feel embarrassed at first, it’s the best way to get back on track when you run out of options.

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There are tons of non-profit credit counseling organizations that can offer you free guidance on how to escape the debt trap. An example is The National Foundation for Credit Counseling. They simply review your finances and help you determine the source of your financial problems. After that, they match you with an actionable debt management solution.[3]

In extreme cases, the debt solution can be:

  • Debt relief – where your debt is partially or wholly forgiven
  • Debt consolidation – taking out one loan to repay others
  • Debt settlement – the creditor forgives a significant portion of your debt
  • Bankruptcy – legal process for seeking relief from some or all your debts

It’s necessary to carefully weigh your options before deciding on the way to go. Find out how it might affect your credit score and any other risks.

Wrapping It Up

Debt is a major setback when you’re trying to prosper in life. Paying off credit card debt is essential if you want to reach your financial goals. That means having more free income, a good credit card score, and even a chance to retire early. You become more productive each day because of the peace in your mind.

So, you now have some tips on how to pay off credit fast. Go ahead and get rid of that good life progress killer!

More Tips on How to Pay Off Debt

Featured photo credit: rupixen.com via unsplash.com

Reference

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