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(91 votes) Published: Oct 18, 2007 10:18 p.m. In 2 Favorites Lists Viewed 373 times
An egg on how to make money thru investments. The idea seemed well received, so I figured I’d go for it.
Alright, first off, I’m going to make this one more simple, less risky than future ones. If there are future ones. $1mil in 16 years takes a bit of reserve, and its not easy if you don’t really understand investments. However, this will be a good start, and will also help if you just want to make some money to live more comfortably.
To start, some things you must know:
First, interest: When you invest money, or someone invests money into you, you make turnover thru interest, which is a fixed percent. An example will serve as better explanation. Say you invest 500 dollars into something that has a 5% interest rate. Every time interest is given, you make 5% of that 500, meaning you make $25 every time they pay you the interest. Most banks give Annual Interest, most credit card companies charge monthly interest.
*The higher the Risk for the investor, the higher the Turnover.*
*The higher the Risk for the invested, the lower the turnover*
About Banks: Once you put your money in a bank, your investing in something. The bank uses your money to fund things, like the loans other people take out. However, thats very high risk for the bank, people move funds around all the time. So the interest they give you is low.
A CD: Certified Deposit, or money that you invest in a bank that you agree not to touch for X amount of time. Higher interest, because it’s less risky for the bank.
About Stocks/Mutual Funds: I will save these for a later time, considering their complexity, but I will introduce them. First, a Mutual Fund is simply going in with people to buy multiple stocks that are linked. Stocks are a share of a company. Company does good, stocks become worth more, company does bad, stocks are worth less. Higher risk for the investor, since it depends on the company, expecially since if a company goes bankrupt the stocks become worthless.
Other Investments: Again, saving for another time, but it’s good to know about them.
First Lean: This is when you go in with someone to help purchase a house. For instance, you invest 20,000 dollars with some other people so a guy can build his dream house. Then, every year, he has to pay you, and the other investors, the money back, with interest. Were talking upwards of 20-40%. So say you agree that he has to pay you back in 10 years, thats 2000 a year. So for ten years, you get paid $2400. Thats $400 that you don’t have to do anything for. However, the person may go bankrupt, and then your out ALL of the money.
Property/Real-estate/Business: A house is the biggest investment you can have. The prices on housing can go up and up, you can make 100% turnover if you time it right. Or an earthquake can destroy it. But if you invest 250000 in a house, flip it and sell it for 500000, you’d only have to do that 4 times to make $1mil. This is real high end stuff, I don’t even understand it really well.
On to what you can do to get an early start.
Step one. Get a job. Kinda a Durrr thing, but I felt it needed stating.
Step 2, find out how much you can invest per month. Granted, if you make $1000 a month, factor 300 for rent, 100 for food and 100 for gas, 100 for payments, and add 200 for pleasure, your only left with 200. But thats enough for the initial.
Step 3. Open a Checking Account. Checking accounts yield little, if any, interest, but with a debt card you can move funds around easily and it serves as a way to manage money, important for step 4.
Step 4. Open an Orange Savings account from IngDirect. Most banks, at best, will give you .2% interest. Ing, being paperless, can offer 4.5%. You need to transfer funds to the account over the Internet, which is why you need the checking account to link to.
Now for some math. If you invest a meager $200 a month, at the end of year one you’ll have made $108 in interest. Not bad, considering its money that you didn’t work for. Its about a day of work, maybe more.
So now you have $2508 in your account. Starting to look good yet? Lets say you continue just adding 200 per month, another 2400. But you don’t just make another $108 in interest, because you make interest on both the first year investment and the interest on the first year investment. You make $220 for nothing.
If you only continued this $200 per month trend, and didn’t go into anything riskier than a savings account, watch.
Year 3: Starting: 5128, add 2400=7528. Interest=338, so years end=7866
Year 4: Starting: 7866, add 2400=10266. Interest=462, years end=10728
Year 5: Starting: 10728, add 2400=13128. Interest=590, years end=13718
Year 6: Starting: 13718, add 2400=16118, interest=725, years end=16843
Year 7: Starting: 16843, add 2400=19243, interest=865, years end=20108
Year 8: Starting: 20108, add 2400=22508, interest=1012, years end=23520
So after 8 years, your making $1000 in interest. Now, in the scheme of things, that may not seem like allot. But your getting that for doing NOTHING. And this is low risk, really really low risk. In fact, its practically Guaranteed. If at year 3 you had started in CDs, you’d be making 5.5% interest instead of 4.5. Stocks can yield even more, sometimes even 10%. So if you dumped all your money in year five into stocks, you could, instead of starting year eight with 20108, almost 35000. etc.
At this point, since this egg is already to long, take away this: You can make money without a college education. You can make quite a bit. You don’t have to live in horrible conditions if you only make minimum wage. You just need a little patience, and the ability to say "I really don’t need a new computer, radio, guitar etc. yet"
*Also, the numbers I used were per average around where I live. They will be different around where you live, but its weighted to reflect Cost of Living, so the ideas are global.
Oct 19, 2007 3:29 pm - i knew alot of this but i think it is something that is really useful and important to know whether or not you are really interested in it. 5**
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