Question

Finance is exciting! In this course, we learned how money can grow through the use of compounding and interest rates and your growth strategies may now be different. What are your new financial goals? Would you like to become more liquid, to save more for your retirement, or to start a new business? Whatever your goals, finance is right at the core. Think about what you learned in this course regarding investing to complete this assignment.

Describe three ways you will invest in your future based on the principles of finance. Include terminology from the course and use citations as necessary to support your explanation of the terminology. Discuss one of the three ways you feel most confident as a way to invest in your future. Explain your level of confidence. Of the three ways that you will invest in your future, discuss the one that you perceive might be the most challenging. Then, discuss how you might overcome some of those challenges.

Answer 1

Financial fitness, like physical fitness, is mostly about good habits. “You’re establishing habits and getting into a routine at an early age,” says Mary Beth Storjohann, certified financial planner and CEO and founder of Workable Wealth. “So as your income grows and your life gets more complicated as you get older, you’re already in the routine of setting money aside, tracking your spending, saving for retirement and you know how to shape and plan for goals.”

Here are three habits to adopt now for financial health:

1. Spend less than you earn.

This principle is at the core of all good financial management. It’s how rich people get rich.  It’s how people who aren’t wealthy can achieve their life goals anyway, without scads of money to throw around. When you spend less than you earn, you save. And what you save becomes wealth.

“[This principle] is what makes people not worry about money, because they know they can pay their bills every month, and if an emergency comes up, they know they have enough in savings. People who spend more than they earn are going further and further into credit card debt or going into their overdraft, and that creates a ton of stress,” says Sophia Bera, certified financial planner and founder of Gen Y Planning.

This was key for me to climb out of debt, stay out of debt, build up my savings and achieve life goals like quitting my job to freelance, living in Italy for four months, moving to a new city and more.

No matter how wealthy or poor you start out as an adult, this is the secret to maintaining a life of freedom to pursue your goals. The wealthy, if they live beyond their means, lose their riches, and the poor, if they do the same, will never escape poverty. While the other two primary financial principles will make your life a lot easier, this one makes or breaks your life, period.

2. Invest as early as you can.

Everyone’s biggest financial challenge is saving for retirement. It’s the largest amount of money you’ll have to save in your lifetime, and unpredictable windfalls notwithstanding, the only way to accomplish it is to save regularly over a long period of time. But if you start to save early on in your career, the prospect becomes less daunting.

Saving at a young age allows you to take advantage of the power of compounding. If Person A saves $5,000 a year from age 25 to 40 for a total of $75,000 and then never invests another penny, and Person B invests $5,000 every year from 40 to 65 for a total of $125,000 invested, assuming 5% growth, Person A will end up with more than $400,000 by retirement, while Person B will only have $256,000, simply because Person A started saving earlier, even if she put away less.

“The earlier you start investing, the longer your money is in the market, hopefully giving you a return in the market, beyond inflation, to set you up for an income stream in retirement,” says Storjohann. “You’re in an accumulation phase for the next 30-35 years, and you want your money to grow, because when we’re 65, that’s when we have to turn on the spigot, and all of our funds have to turn into a paycheck replacement for us. We’re building up one large pot to give us a paycheck for the rest of our lives.”

So if you want to make saving for retirement a whole lot easier for yourself, start now, if you haven’t yet. Your mind is probably whirring with excuses at this point—how you really need the money now, how you’ll start when you make more money, how you can get to it later—but the truth is, there will always be an excuse. When you get a raise, you may want to save for a house, or maybe you’ll want to save for a wedding or to have kids, or save for their college education. There will never be an optimal time to start saving for retirement. You will always have to do it against competing priorities. So learn to do it at the same time as these other demands on your life. Then, when you’re 65 and you want to retire, you’ll be so glad you have enough money to live a comfortable life for the next few decades. If you don’t, then at 55 you may be facing a layoff with a modest nest egg, and you’ll be cursing your younger self.

3. Earn more.

“Earning more solves multiple problems,” says Bera. “If you’re used to making $2,000 a month net income from your day job but you’re able to do part-time work freelance or pick up extra hours on the weekend, that’s all extra. That’s above and beyond what you’re already making, so if you’ve already figured out your monthly expenses, let’s say you’re making $500 extra a month—that’s money that can go to pay down debt quickly or build up savings fast.” Or, you could use that money to go on a trip or save for a down payment on a home.

Spend less than you earn is the habit which I feel most confident in invest in my future. What ever I am spending I will have a proper budget for that. So I tried spending money within my limitations. And rest of the amount I invest for my future. As I have proper planning on my spending, I am confident this way for investing money for future.

Invest as early as you can is the most challeging one for the starting up of future investment. At the First stage of my carrier, I was not bother about how much I am earning and how much i am spending. How much I am earning, I will spend more than which i earned. When I started thinking about my future, I have covered my half of life. So, when I started the investment, I insist to reduce my luxury life. I reached in a situation to invest more money for the future. So that became a biggest challenge for me. I overcame the situation by investing more and spend less.