Reduce Debt Increase Wealth

Saving Vs Investing

June 05, 2022 MIsterchuck Season 3 Episode 116
Reduce Debt Increase Wealth
Saving Vs Investing
Show Notes Transcript Chapter Markers

Having an emergency fund is essential in keeping on track with any goals and plans. Increasing the emergency fund is important as the debt reduced this will help keep the debt under control in the future. Once the emergency fund is large enough then start investing first in a high yield saving, then in the market. 

 Article Links:

https://www.investopedia.com/articles/basics/06/invest1000.asp By Chad Langager

https://www.investopedia.com/articles/investing/022516/saving-vs-investing-understanding-key-differences.asp By Lauren Welch

UNBOUND: Saybrook Insights with President Nathan Long
Saybrook Insights is a podcast featuring education & community innovators!

Listen on: Apple Podcasts   Spotify

How to contact Misterchuck , for questions, comments, requests use this email address. Reducedebtincreasewealth@gmai.com

Charles McDonald:

Hello, I'm your host Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time. debt reduction to achieve financial freedom takes commitment, confidence, determination. savings versus investing. Having an emergency fund is essential and keeping on track with any goals and plans. increasing their emergency fund is important. As the debt is reduced. This will help keep the debt under control in the future. Once the emergency fund is large enough, then start investing first and a high yield savings then in the market. That's a brief overview of what I'm going to talk about. And my show notes I have two articles, one's the basics of investing. And the other one is savings versus investing, and overview. And I'm going to start with the overview first. The word Savings Investments are sometimes used interchangeably, but when it comes right down to it, we should be engaged in both to secure financial future. A shared characteristics of both savings investment is the utmost importance that they play in our lives. If you're not doing either the time is to get started. Now, this may require a change in spending, tracking and the utilization of your income. But it can and should be built into your plan. Plan meaning budget. A general rule of thumb is savings should be short term while investing should be long term. Short term is anything less than seven years long term is anything greater than seven years or seven years and greater. Keeping in mind that let's review the difference. Also keep in mind for both savings investing, that when the risk goes down, liquidity goes up and vice versa. Savings we save for purchases and emergencies. Saving money typically means it's available when we need it and then has a low risk of losing value. It's important to track your savings putting a deadline or timeline and value to your goals. For example, if you're saving for your annual family vacation, you might want to target $3,000 To save in nine months to withdraw at the end of the year. You then know how much you need. How much to say monthly in the ability to take the money out without fees to spend on that treasured vacation investing. When investing it's important to invest wisely, you will have a better return if you begin investing early. Understanding different investment vehicles what they are for and how to use them is imperative to be in successful. We invest for long term goals such as our college, our children's college fund, or retirement. We use specific physicals that allow for growth. If our children have 10 plus years before they go to college. We can invest monthly in a vehicle like an education savings account, or a 529 plans. These allow for withdraw when your child goes to college. Long term college plans can help you successfully reach that goal. He differences to start the biggest and most in Florence. Influential difference between savings and investing is a risk. You say when you put money into a savings account, like a money market or a certificate of deposit and has little risk of loss of funds, but it also has minimal gains. When you save you're usually able to pull all the money out when you need it or after a period of time. When you invest you have a potential for better long term gains or rewards that also the potential for loss, your risk more and investing for larger return. But you potential loss can be large as well. It's important to review your goals to figure out which option is best for each one. savings or investing. Choosing incorrectly could cost you a lot of money and fees or loss of potential income through investing. Another difference is interest or money made and investing we want our investments to make us money. While the goal is savings to keep our money safe, making very little return. I see certificate of deposit as a proper savings tool. This tool can be relatively short term ranging from A few months too many, seven or more years, while in the CD your money is safe from grows at a slightly bigger interest rate than a regular savings account. But access in it before the term the CD is over, could mean pay in fees and penalties. Make sure to find the best rate on a CD by comparing options from a number of institutes. It is possible to be a wonderful investor have growth in your 401k and have investment properties, but be unable to make ends meet because you do not understand how to say your short term funds. He can say money each month but long term those savings will not pay in retirement, and most likely will not pay your child's children's college making investing equally important that you remind us how important both are especially when done together. special considerations generally speaking, short term is under seven years long term is over seven years. But when it comes to saving and investing, those figures are based on more on the specifics of the goal. Keep in mind when you will need funds, what your plans is for the funds, and the safety risks associated with the goal. And the end do not wait to save or invest time is the greatest opportunity to grow your money and meet your goals. With a relatively small amount of money, you can start investing and saving and get on the path to reach all your financial goals. savings should be your emergency fund up to six months, maybe even a year. When you get your debt paid down or pay completely off, then your emergency fund should be much larger. While you're trying to get out of debt, he still should be making contributions to a retirement plan. Say especially if you have a retirement plan through your employer, do not stop making contributions. As most cases your employer has a some type of match. If you quit making contributions, you're gonna lose those matches, and you're leaving benefits on the table that your employer is offering to pay you. investing for retirement with a 401k or your employer's plan is a long term goal. Even if you start out with a small amount 1% of your gross income, and the employer matches 1% That will over time grow. So what your actual amount of money you may put in to your investment may say let's say it's $10,000, over 20 years, at that $10,000 After 20 years, when you're getting closer to retirement, maybe two $300,000. So that's a lot of money that you earn on that investment that you have available to us. Savings, on the other hand, pays for very little interest at this time. So savings is this a low risk place to put your money, you earn a little bit of interest. So if something bad happens, you have money available to pay for it without having to use credit. That is the major reason why you want to have an emergency fund. Let's say you have four or five credit cards you have maxed out you got a car loan, mortgage line of credit on your home. So you're spending most of your money. Most of your monthly income is going to pay off that debt or pay down that debt every month. And you don't have a savings account. But what happens if something bad happens maybe you need a hot water heater, maybe you have some plumbing issues in your home, maybe your car breaks down, maybe you need a set of tires, or maybe just a battery for the car because it's winter time your battery won't start won't crank the car over to start. You have money in your emergency fund that will pay for those types of expenses so that you don't keep using credit. As I stated earlier, once you get started tracking budget, that reduction plan, you do all these sayings at the same time. So even though you may be struggling to pay off your debt, you still need to be setting some money aside For your savings for your emergency fund, and you should continue to put money into your employer's retirement plan it cuz if you don't eat don't do that for 10 years, let's say, at time a loss that young won't ever be able to recover from. And you'll definitely pay the price when you retire, you'll have a lot less money available at retirement. So that is very important to stay on track with your retirement planning. Same thing, if you have young children and maybe one years old or younger, if you're wanting them to go to college, college is very expensive. And it's gonna be even more by that time your children are old enough to go to college. So if you have enough money, and a 529 plan, or an education savings account someplace, and it's enough to pay for one or two years of college, he got a start. That's that much money you won't have to borrow later on. Hopefully, your children who do go to college will have good enough grades, where they'll be able to get some type of scholarship aid, get some type of other types of aid so that you even pay less, and tuition, books, and living expenses when the time comes to investing in stocks. If you've never done it, and you're a beginner, maybe you don't know anything there is the first thing you need to do is educate yourself. If you are investing through your employer's plan, they most likely have it through some a broker somewhere. And they offer a set amount of funds or mutual funds or whatever that you can invest in. If you don't know anything about him. If your employer offers training, or assistance, and making these investment decisions, you should go to that training, he should learn as much as you can. Because not all mutual funds are equal. Some do better than others, some of them, all of them do good and a good market. But only a few of them do good and a bad market. You want to be in the ones that do good when the market is down. Over time, it will make a big difference. So the more you know, the more you study, the more you understand what investing is all about. And the different types of things you invest in, whether it's common stock, bonds, mutual funds, and lot electronic Traded Funds are basically a mutual funds that done electronically so there's lesser fees. Buying commodities such as gold, silver, oil, whatever you need to understand what you're doing before you start investing in those items. So here's the how to start investing in stock a beginner's guide to investing as a way to set aside money while you're busy with life and have the money to work for you say he can hopefully reap the rewards of your labor in the future. Investing is a means to a happier ending. legendary investor, Warren Buffett defines investing as a process of laying out money now, and the expectation of receiving more money in the future. The goal of investing is to put your money to work, and one or more types of investment vehicles in the hopes of growing your money over time. Let's say you have $1,000 set aside and I'm ready to enter the world of investing. Or maybe you have only an extra $10 a week and you'd like to get into investing. We'll walk you through getting started as an investor and show you how to maximize your return by minimizing your costs. Investing is defined as the act of committing money or capital to an endeavor with the expectation of attaining additional income or profit. Unlike consuming investing, earmark money for the future, hoping that it will grow over time. However investing also comes with a risk of loss. Important to know and understand. investing in the stock market is the most common way for beginners to gain investment experience. What kind of investor Are you before you commit your money? You Need to answer this question? What type of investor am I? When opening a brokerage account an online broker such as Charles Schwab or fidelity will ask you about your investment goals and what level of risk you're willing to take. That generally speaking, the younger you are, the more risk he can take. The older you are, the more conservative the less risk you should take. Some investor wants to take an active hand in managing their money's growth, while others prefer to set it and forget it. More traditional online brokers liked it to mention above allied you invest in stocks, bonds, exchange traded funds, ETFs, ETFs, and index funds and mutual funds. online brokers brokers are either a full service or discount. full service brokers as the name implies give the reins of traditional brokerage services, including financial advice for retirement, health care and everything related to money. They usually only deal with higher net worth clients and can charge substantial fees, including a percentage of your transaction, a percentage of your assets that they manage, and sometimes a yearly membership fee is common to see a minimum account size of 25,000 and up at full service brokerage. Still, traditional brokers justify their high fees by giving advice details to your needs. Remember, they're in it to make money for themselves. They don't want you to buy and sell more often because that's when they make a commission. A discount broker used to be the exception, but now is the norm. Discount online brokers gave you tools to select and place your own transaction. And many of them also offer a set it and forget it. Robo advisory service, the space of financial services have progressed in the 21st century, online brokers have added more features, including educational materials on their sites, and mobile apps. So before you get started, he can go to a discount broker, go to their website, and they have articles and you can read them and you can learn about investing before you do it. robo advisor if you don't have a lot of money, and you but you're willing to put say $50 A month or $5 a week or some minimal amount, that do it on a regular basis. A robo advisor is the way to go. Let me see what if their mission was to use technology to lower the cost for investors and streamline investing advice. I do use robo advisors for some might on the side investing. I've done fairly well with it. But again, all investing should be considered long term. It's not something you put in $100 today, and next week, sell it and say Oh, I made $5. Well, yeah, it might be the case. But that's not the intent of investing. And investing is over a long period of time. The longer you hold the investment, the more likely you'll have a larger game. And then you have your employer if you're on a tight bucket budget, try to invest just 1% of your salary into a retirement plan available to you at work to truth is you probably don't even miss that a contribution that small minimums to open account some firms won't even allow you to open account with a sum as small as $1,000. Well that's where a robo advisors come in because you can do that five bucks. Try to shop around check out broker reviews before deciding where you want to open account we list minimum deposits at the top of each reviews, trading commissions and fees. There ain't no such thing as a free lunch through many brokers had been bracing recently to lower eliminate Commission's on trades, and ETFs offer index investing to everyone who can trade with barebone brokerage accounts. All brokers have to make money from our customers in one way or another. In most cases, your broker will charge a commission every time you trade stock either through buying or selling. trading fees range from the low end of $2 per trade that can be as high as $10 for some discount brokers. Some brokers charge no commission at all but they make it up in other ways. There are no charitable organization running broke REITs forms services. Depending how often you tre these fees can add up can affect your profitability. Remember, when you buy mutual funds, they have a front end load and they have an exit low. If it's a front end load, that means you'll have less money to invest over time. If it's an exit load, you pay more because you should be have a lot more money. In that particular account loads etc, diversity and risk, you need to diversify your investments so that you're you don't have all your eggs, all your money in one basket. Basically, diversify means you're placing your money in large cap or small cap companies, very large companies, very small companies, you may be putting them in tech companies, you may put them traditional companies, companies that sell consumer goods, and some retail, some in the United States, some may be formed. So you spread your money around in that at first, because you don't have much to spread. But over time, you need to diversify. And this we're a financial advisor is really helpful. Once you have enough money, I'm thinking it's maybe around 10 to $15,000 in the market, look for an advance of financial advisor that will help you. And a lot of times when you use financial advisor, especially the larger firms that management billions of dollars for 1000s of clients, they don't have to pay the same fees that you would do in it by yourself. So if they would buy in a mutual fund, for instance, that you would like to pay who have, you may have to pay a 5%, low front end load where they don't pay. And then when they take the money out that they might have an exit fee, they don't pay that. So save you a lot of money. And your money will grow faster, because you'll have more of it. And they're invested. And the market goes up and down every day because it's very jittery. It's a nervous Nellie, as I call it. Any news that's bad the market will drop any news is good the market or race, he cannot time the market, the best strategy you can do is pick a day of the month and make them same amount investment on the same day, every month, over years. That way your ups and downs were averaged themselves out. And over time, you'll end up with a large gain and lots of money to use in the future. So it's possible for about anybody to do investing, whether or not you're good or bad at it or, or if you don't want to spend the time doing it, then once you get to a certain amount start looking for financial advisor, that's a fiduciary. That means they only charge you based on the value of your portfolio. Your portfolio is the total amount that you have invested through that particular firm or with that particular advisor. And it's a percentage. The more you have the smaller the percentage. So as you do better, they do better. That's the theory of it. And they're out there working for you. They want you to succeed, because that means more income for them. I'll be back in one moment was my final thoughts. If you listen to this podcast, using an app, please find rate and review. And please rate and review, reduce debt increase wealth.com. If you know anybody that could benefit from listening to this podcast, please refer them to reduce debt increase wealth.com. They can find it on any app and or facebook if they would like to listen to it. Using Facebook. Investing comes with risk. You need to know what your level of risk is. What are you willing to risk and how risky that you're investing in? Saving is the less risk you've put money in your local bank to your you have your checking account and it's got 100% Guaranteed as the bank goes belly up. The FDIC the federal will come in and pay you your money, no problem there. Generally another bank will come in and take over it and be everything will carry on Well, once you have, say three months worth of living expenses in your local savings account, then you need to look for a savings account that pays you higher rates of interest, which is called a high yield savings. These are generally online banks, where you can transfer your money and set up an account, transfer your money in, and you're gonna get a whole lot more interest. And here's an example of the difference I receive, I have about a $2,500 monthly balance in my savings account, I get about 10 cents a quarter, and entrust I've transferred the majority of my money, the Anything over that $2,500 into a high yield savings account, which I usually get around six to $7 per month. So that's 18 to $21 more a month I'm earning from the high yield savings, because I got significantly more money in there. But it pays a higher rate of interest. With inflation kicking in and going up the price of gasoline going up, you can expect the price of all goods to go up. Because everything is brought to this doors bought by a truck, and the truck buys fuel, and the fuel is getting more expensive. So expect the cost of everything you buy to go up in price no matter where you are, or what you're buying. So once you have your local savings account, let's call it he just need enough money in there that call the cover small emergencies may be the buy a battery for your car, maybe to pay for a doctor's fee, if you had to take a trial to the doctor to pay the pay for whatever happened to your child. And then you have money in a high yield savings. And that should be enough to six months to a year. If you have no debt that should be larger. And the more money you make, the faster that's gonna grow, he should then once your debts under control, and increase the amount you're making contributions to your retirement plan, increase it to 5%, increase it to 8% increase in the lease to the maximum amount that your employer or match. That way, you'll get double the amount put in there for you on your behalf that you're not paying tax on until you take the money out of that particular account or out a retirement account. So when you retire, compounding your profits and your interest is the making your money work for you. So that you don't have to work as long or as part. That's why these fire movement people, they minimize their living expenses for say five years. And they save the maximum amount that can 50 to 70% of their income so that they can quit working early. And a lot of them say they retire early, a lot of them say they quit or they may quit their current job, but they're still doing something to earn money. And that's what these investments will come into. Once you get to that point and have enough money, you can then get into investments that's gonna earn you some monthly income and where you pay a lot less taxes and that would be passive income. The most common easiest thing to reflect on is rental real estate where you buy some real estate and you're renting out the renters are paying for your mortgage and they're paying you cash every month you have little or low expenses and mean you got to maintain the property you got to pay the taxes you got to pay the insurance they pay the utilities they pay you know been they're gonna pay enough for the rent to cover your your mortgage and then you should have some leftover and your tax on that money is gonna be little because when you go to your tax return guy they're gonna say you lost money, but yet you have cash from it. So you're making your money work for you and that would be a tax advantage. Investing in the market it's more long term and in order to have enough money so you can just live off the dividends are interesting company may get you in Nowadays 2022, he would need to have a significant amount of money invested in the stock market to receive that much income. And they don't pay dividends on a monthly basis. It's Spieler, quarterly, semi annual, whatever. So it's not gonna be something you can draw out every month, he might be looking at the fire movement, and they're talking about the 4% rule, we're using withdrawal 4% of your total amount invested. And those should last you the rest of your life. That may not hold true today. So beware, do your homework before you do anything like that. But if you invest wisely, you invest safely keep it low risk, what you can tolerate, or even a little bit lower than what you can tolerate the young year are, the more risk you can take. The older you are, the less risk you should take. Because you got less time to recover. If the market would drop. Don't try to time the market because it never works. Very few people ever make money doing that means you might have a neighbor or somebody so this is a great investment. I made a lot of money on it. And right now it comes to my head is Bitcoin. If you don't understand what it is, don't invest in it. You need to understand what it is you're investing in. You need to be comfortable with what you're investing in. And if you don't like the company, for whatever reason, don't invest in that company. If you don't like the product, don't invest in that company. So keep it simple. Keep it under control. Learn, read, and you'll be happy you did so