Financial Selfcare: Earning, Saving, And Investing
Inevitably, any conversation about personal finances includes goals geared toward earning, saving, and investing. Earning goals seem the easiest to tackle for most-find a field you have some interest in and aptitude for, train, and then enter that career. If only it all occurred that smoothly and straightforward, but with the average American changing careers three to seven times in a work-life, there is hope for people who enter the workforce with one set of dreams only to find a different path calling them. While earning doesn’t seem to be a problem for most, the days of employer pension plans are a thing of the past. With their disappearance, the need for a solid understanding of saving and investing grows for most people. To create financial stability and build a retirement, you need your money to work for you as you are working for it and how you do that is by saving and investing.
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Saving money to deposit accounts such as saving accounts, checking accounts, and CD accounts carry no risks if the accounts are $250,000 or less are FDIC insured. If the bank goes under or in many cases bought out by another bank, your money is returned to you. This protection was put in place in the ’30s to prevent the type of panic that caused widespread economic havoc after the 1929 stock market crash. After the crash, people withdrew their money from banks at such high rates that banks weren’t able to loan money to people or businesses. Many banks closed during this period- pushing the US economy deeper into an economic depression. Though these accounts have little to no interest earned on the money placed in them, some accounts offer more returns like High-Yield Savings Accounts, Interest-Bearing Checking Accounts, or various CD accounts. However, there may be minimum balances required, recurring monthly deposits needed, or deposit amounts held for a fixed period. It’s important to note that brokered CDs are a different kind of CD and aren’t always FDIC-insured. And keeping more than $250,000 with one institution isn’t a smart idea. Anything above that amount within one institution will not be insured and therefore not returned to you.
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In Investing, you expose some or all your invested money to loss for the chance to earn a higher profit. The five main types of investment are stocks, bonds, mutual funds, real estate, and commodities. Though investments like stocks, bonds, and mutual funds have historically had 7% -10% annual gains, that type of increase isn’t guaranteed. Investment gain hinges on an ongoing and long-term investment strategy that uses your risk tolerance and diversification to mitigate some risks. Your risk tolerance which is the amount of risk you are willing to endure and how well you will handle losses, will change throughout your lifetime. Your risk tolerance can alter as your goals change, income changes, family changes, assets accumulate, and you age. Diversification merely is choosing a variety of things to invest in so that if one investment doesn’t yield gains or even loses money, you have others that may offset that loss. Remember diversifying can’t 100% guarantee that you don’t lose any money when investing but knowing your risk tolerance and sticking with it is critical.
By putting your earned money to work, you are taking steps towards your financial goals. Sometimes saving and investing are used interchangeably, but their differences lie in the risk associated with each asset management type. Both saving and investing are essential for financial stability and growth, but with gatekeeping language and concepts, sometimes it feels like the learning curve is too steep for a beginner. But you have done many hard things, and you can do this because they are crucial skills to financially taking care of yourself through every stage of your life. Earning, saving, and investing is vital for self-care.
Advisory services offered through Capital Asset Advisory Services, LLC, a Registered Investment Advisor. This material has been prepared for informational purposes.