If you’re wondering whether or not you should invest your money in something, the answer will most likely be yes. Whether you invest in physical goods, real estate, or stocks and bonds, your money will grow exponentially with investment returns.
There are many different types of investments to choose from, each offering its own benefits and risks, so make sure you research every option before taking the plunge. We’ve outlined five reasons why it makes sense to invest your money below to help you get started!
Understand where you are financially
To understand where you are financial, calculate your net worth. Net worth is calculated by adding up all of your assets (property, cash in savings accounts, investments, and home value) and subtracting it from your liabilities (your debts and liabilities like student loans).
Many financial advisors say that a good rule of thumb is to aim for having a net worth that’s three times your income. Once you have an understanding of where you stand today, create a plan for how you’re going to get there.
Calculate your net worth
Knowing how much you’re worth can be difficult because there are so many factors involved. To calculate your net worth, add up all of your assets (savings, investments, and property) and subtract all of your liabilities (debts).
This will give you a rough estimate of what’s in your bank account. If you want to take it a step further, look into developing a more advanced personal financial statement to examine where your money is going each month.
Figure out what you can save
The first step in deciding how to invest in determining how much you can actually save. This can be broken down into two categories: what’s coming in, and what’s going out.
If you don’t know where your money is going every month, there are a number of tools available that will help you figure it out—even if it just means using Excel and tracking your expenses manually for a couple of months.
Where should you invest?
With so many options out there, it can be hard to decide where you should invest your money. One thing is certain, though: investing your money gives you a chance to potentially earn a great return on your investments—and who doesn’t want that?
Start with an index fund (for beginners)
If you’re just getting started, don’t worry about reading a bunch of dense books on how to invest. Instead, consider investing in an index fund—this is a simple way to invest that involves buying stock from companies across different sectors (like technology, healthcare, and consumer goods).
An index fund is low-cost and passive—meaning that once you put your money in, you can sit back and let it grow. There are no individual stocks to research or manage.