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Financial writer Diana Smith has a great guest post for us today on simple money hacks you should use this year. Check it out and let us know your thoughts in the comments.
While some people may have trouble with a lack of funds, others might find a sudden surplus in their budget to be just as problematic. With more money comes more responsibility and, now, you’re suddenly expected to make a rational choice of what to do with all these assets.
Should you put it all into your savings account or your 401(k)? Is it a better idea to invest it in a stock, start a business or purchase some precious metals?
Well, it all depends on the situation and here are five issues you need to consider, as well as some tips you might find useful in 2018.
Before you even start planning a major investment, you need to make sure that you’re covered in case of an emergency. You see, with day trading, you can always rely on your funds but with position trading, there is always a chance that your assets will be tied for the better part of the year. Therefore, you need to ensure that you have an emergency fund to rely on. Even with a stable financial situation, you would be surprised just how easily people lose their jobs or find themselves in a situation where they have to help out a friend or a close relative.
There is a general consensus that a minimum for a decent emergency fund amounts to three months-worth of your bills. For instance, if you need about $2,000 to settle all your bills for a month, you should have at least $6,000 in your emergency fund. Of course, feel free to create an account that is several times that amount. Once you’re covered from this side, you can make an investment and watch your funds grow over time.
The next thing you need to keep in mind is that deciding whether to invest isn’t such a simple matter at all. Needless to say, there are more than a couple of clear indicators, yet, how conclusive they are, often depends on your own perception of these things.
If you have a well-established emergency fund already, most of your loans are paid off (at least those high-interest ones) and you are actually able to allocate your resources (this is no longer just a phrase that you hear other people using), you are in a good situation. Finally, you need to have your investment goals in mind and they have to stretch at least five years in the future. Once you manage to achieve this, you are definitely ready to invest.
With more and more people investing in stocks, cryptocurrencies and trading on the foreign exchange market, one has to raise a question of whether it would be better to just stick with something a bit more traditional. For centuries, people have invested in precious metals in order to preserve, potentially even increase their assets. For this reason, a lot of people are interested in the idea of purchasing a gold bullion online. Nowadays, you can even buy gold and silver with Bitcoin, which starts a whole new era for all three types of assets.
As for the reasons why you should invest in gold, it’s safe, it diversifies your portfolio and it has a long history as a value standard. Most importantly, its characteristics alone ensure that its value is uncorrelated with other assets, which means that it won’t be affected by the same market fluctuations as your other investments. In other words, investing in precious metals, as well, means playing it safe.
Another major issue that a lot of people are having trouble with is the question of whether you should pay off your debts first or invest in order to earn a bit more. This question, however, needs to be addressed from several aspects, not only an economic one.
First of all, paying off all your debts might put your mind at ease and reduce the stress you’re experiencing on a daily basis. As for the financial calculation, you need to look at the interest rate. In some cases, paying off a high-interest rate debt can stand to save you a small fortune in the long run.
Finally, when it comes to investing your assets, you need to understand that there are two major styles – day trading and position trading. While the first one may currently be more popular, it is quite time-consuming, which makes an impression of it being more of a side job than an actual investment.
As for the position trading, it is probably closer to what people have in mind when they think about a standard form of investment. Either way, you need to see which of these two styles fits your goals, budget and personal preferences.
At the end of the day, the issue of what to do with your hard-earned (won or inherited) money is definitely not something you have to decide in an instant. Take your time to explore all the different possibilities, weigh the pros and cons and, at the end of the day, go with the option that just feels right. After all, it’s your money to spend.