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There are lots of investment options out there that you can make. Something that I’ve found that actually puts people off of investing is there are too many options, it’s complicated, and overwhelming. Often the toughest step to take is the first, but once it’s out of the way everything else is easy.
When we think of the investments you need to make to build wealth, I think we can really simplify it. So no matter what your passions are or what stage of your life you’re currently in, we have a plan that works.
Essentially, there become three investments we need to make:
- We need to be able to make money.
- We need to be able to let our money work for us.
- We need to be able to protect the investments we’ve made.
Let’s take a closer look at what I mean below.
Invest in Your Education
Investing in your education can take a lot of different forms. There’s no right or wrong solution for everyone, but basically, you need to develop skills and gain knowledge to be able to make a living.
Traditionally this has taken the form of going to university or college — typically four years (or more) and costing several thousands of dollars every year. Depending on what you go into, a degree from a university doesn’t guarantee a high paying job or even a job at all.
Trade schools are a more hands-on version of universities. They offer courses usually one to three years in length for in-demand jobs. The education combines in class with practical experience, often with co-op programs for real-world experience prior to graduation.
An alternative that has become more and more popular in recent years is online courses. Especially with the developments during 2020, a push to the virtual learning experience has been rushed to the forefront. And although these alternatives don’t always provide a degree or diploma, they can provide a lot of relevant skills. Google, Microsoft, and I imagine other big tech companies are starting to roll out courses that they believe are the equivalent to a four-year degree program — but take only six months to complete. Oh and cost only about $300.
You could even find a mentor, or learn skills on your own. There’s really a lot of options for you, and as long as you’re passionate and committed to what you’re trying to accomplish, you’ll get there.
No matter what route you go to achieve a higher level of education, the main priorities should be finding something you’re passionate about, and something that someone will pay you to do (or you could pay yourself to do it). The idea would be to pay $X,XXX to then be able to earn $XXX,XXX every year you work.
Invest for the Long-term
Once you’re in a position where you’re making money, you can start looking at how to save and invest it for your future.
No matter how much you work, you’ll never be able to realistically make as much as you could by just simply investing your money. The reason is compound interest.
If someone saved $200/month for 40 years, they would accumulate $96,000. If we were to invest that and earn on average an 8% annual return, we’d end up with over $621,000. If we didn’t invest at all, we would have to save almost $1,300/month (6.5x more) to get the same result. That’s a huge difference. Investing smartly in the stock markets is a great way to allow your money to work for you, rather than working for it.
Another great way to look at making your money more efficient is by looking at your living situation. Renting versus owning is a debate that’s coming up more and more, and for me, looking at the numbers, owning just makes more sense. The biggest advantage comes once the mortgage is paid off. If you’re a life long renter, you’ll always be paying that rent, and likely it will be increasing every year. Your mortgage should stay pretty consistent, and once it’s paid off, your biggest expense is gone.
The less things we have to pay for, the more of our money we get to keep, and that’s a good feeling. Making smart, longer-term investments that will pay off down the road is good to prioritize early. I like to think of it as doing something your future self will thank you for.
Invest in Insurance
Saving money is tough, if it was easy we’d all be Warren Buffett. To create, implement, and stick to a financial plan takes a lot of time, work, and commitment. So the last thing we want to see is all of our hard work go to waste.
The reality is, there are events that could happen in our lives that would put us in a tough financial position. And if we don’t have insurance, we could be forced to withdraw from our long-term savings.
A general rule I like to say is, if we invest smartly, we can realistically expect our money to double every 10 years.
Today — $1
20 Years — $4
50 Years — $32
If someone is 25 years old and has to withdraw $10,000, that’s the equivalent of taking out $160,000 at retirement (age 65). The long-term repercussions are a lot bigger than what most people even realize. It could cause us to push back retirement or be forced to retire with a lot less money than we were planning for.
So what should we do? We need to make sure that we have proper insurance in place to protect our income and our savings.
Living benefits include Disability Insurance (DI) and Critical Illness Insurance (CI). In the event you’re unable to work because of an accident or illness, DI covers your wage, allowing you to ensure you can make your day to day expenses. CI pays out a tax-free benefit if you’re diagnosed with any of typically 25 covered illnesses. It allows you the financial flexibility to focus on treatment and care, and not stress over how your bills will be paid.
Life Insurance (LI) pays out to the beneficiary upon death. LI isn’t something that used to make you rich, but is used to ensure someone isn’t going to absorb your debt or to ensure your family will have the money it needs to see your plans through. If your life (and family) is based on two salaries and is now down to just one, a lot of sacrifices might need to be made to meet the bare minimum. So things like education funds, financial help down the road, and other things might not be an option for your children. Life insurance can help ensure that even though you’re not there, you’re still able to help.
Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.