If you owe some money to a credit card company or department store, you may have bought things at a given price and exceeded your income to do so, and since you borrowed on credit you are paying an interest rate on that money. You already don’t have enough money, and now you pay more on top of what you don’t have. This lifestyle probably cannot be sustained without sinking deeper into debt. Even if you are promoted at your job and getting paid a higher salary, with typical 3-5 percent annual increase you are basically only matching inflation and not getting ahead.
Starting Your Business
If you contemplated opening your own business to get out of this, you realized that would require perhaps $300-500K upfront, and probably getting a loan for even more money that you do not have. In the ideal situation you may be fortunate enough to eventually turn it into a franchise and all those individual operations would be generating income for you. But with financial investing, you can essentially start with much less money, less work, less time waiting for growth and alternately invest your money in the stock market. Essentially your money itself would become the business generating additional cash flow. All this occurs with less risk if done properly because more than 50 percent of businesses fail during the first five years, and the sad part is it would take that long to actually start making a profit anyway after paying off the debt you started with.
What About the Stock Market?
The Stock Market consists of companies that buy and sell parts of the whole in order to have more cash available to them which they in turn re-invest in themselves for growth purposes and other reasons. People buy stocks or bonds in these companies so they can participate and benefit in their success. If you had money just sitting in a bank account, you are only earning minimal interest, but if you invest wisely in the market, you stand to gain much more. The stock market is composed of companies that make available to us to purchase, portions of the whole. The price is determined on many factors; However, that price is a measurement against how much the company is expected to earn verses how many stocks it is making available. There are various groups of companies that are tracked to the tiniest fraction of a second in which individual investors measure their performance against and try to out-perform. The S&P500 index, NASDAQ and DOW are considered the benchmarks which represent collections of various industries which theoretically demonstrate the performance of the entire market. Individual investors buy various stocks and chart their gains and losses, comparing them to see if they are doing better or worse. The market tends to gain at a rate of about 8-10 percent. As an individual with due diligence, you can expect to do at least as well as, and hopefully much better than that- not to mention your growing contributions and compounded interest on capital result in an upward snowball effect.
How To Get Started:
Choose an online broker and set up an account then deposit funds into it, perhaps electronically from your existing institution. You may want to set up a practice account before you start actually investing. SmartMoney.com is great for this. Next you should read everything you can about companies you may be interested in buying stock in. You can find the most critical info at Yahoo.com/Finance and look under 10-K for annual reports, 10-Q for quarterly reports and the SEC filings. All these will tell you how the company is doing fundamentally so you can make an educated decision about which ones you want to start putting your money in. It is also wise to select those companies which pay dividends, and make sure you are diversifying your portfolio too. We’ll go over this in another article but for now, hopefully I have succeeded in piquing your ‘interest in earning interest”. By investing in stocks you can turn the tables and instead of paying interest to companies for your debt, companies would be paying interest on their debt to you!