Making the most of your money

Juan Casas, Courier Staff

We live in a materialistic society where monetary gain is kin to social status and this is what determines if you are a high-ranking member in society.

The more you make and the more you have, the more successful you appear to your peers. Although this system might seem abhorrent to some, it is reality and we must learn how to navigate such a system based on income and wealth. To coexist functionally in capitalism, you must know how to acquire income and how to build and maintain your wealth. To do this you have to fully understand the rules.

Rule number one, a dollar used is a dollar wasted. Thus, you can’t reuse funds you’ve already used. Rule number two, you need to be patient. It takes time to build wealth and even more time to produce it. Rule number three is discipline, you must be able to say no to wasteful habits. The final rule is motivation, you must be determined and motivated to do what you must do to live comfortably.

Once you understand the rules then you can begin the steps. Step one is to start a zero-based budget. A zero-based budget is a list of your income and expenditure. The point of the budget is to have an account of all your income, to control your money. You can use a budget on a biweekly or monthly basis, and it’s a good first start to pull your finances together. When your budget is done, and all your income is accounted for, you can then start to see where in your budget you can make cuts. For example, if you are wasting hundreds of dollars a month on bad habits then that’s a good place to start by limiting your money on what you don’t need. Next, you can start putting a little bit of money (depending on your income) into a savings. Make this a part of your budget and after a few paychecks you will notice your little nest egg beginning to grow. Now, the hardest part of a budget isn’t making one but sticking to it. This is where discipline comes in. Without discipline, it won’t matter how much money you make because you will waste ll of it and won’t build anything. A good budget is one that covers your primal necessities, clothing, food, shelter, and transportation. Anything and everything else that takes money from your pockets is a want and can be cut back or eliminated.

After your finances are firmly under your control, then you can get to the fun part. Investing is the number one method of building wealth. In life you can either work for your money or have your money work for you. There are many ways you can invest your resourses, from opening your own small business to buying bonds and stocks. My preferable method is via bonds and stocks. Bonds are debts owed to the investor. For example, you can buy a thousand-dollar bond from a company. This means that this company owes to a bank a thousand dollars and the bank sells that debt to you, so the company then owes you instead of the bank. The bank gets its money and you get to collect interest on the money the company owes. Usually for a term of a year to five, where at the end of the term, the company will pay you the thousand dollars. You make money because you are receiving monthly or yearly interest on the bond. So, at the end, the company ends up paying hundreds of dollars to you for the money they owe. The average yield of the interest for a bond can be anywhere from .05 percent to 2-3 percent on a yearly or monthly basis. The good thing about bonds is that they’re usually safer and much less volatile then stocks.

Stocks are by far some of the most effective means of investment. A stock is when you buy into a company, by buying a part of that company. For example, the stock of Snapchat is worth about 10 dollars. The good thing about stocks is also why they are bad, they are almost always more volatile then bonds. This means that today a stock might be worth 10 dollars, tomorrow it might be worth 20, and the day after that they might be worth 5. The thing with this pattern is that you must buy low and sell high to make profit. For example, buy Snapchat at 5 dollars a stock and then sell it at 10 or even 20 dollars a stock. Nearly doubling or tripling your profit. The problem with this is that just like it can go up, it will most certainly go down. The important thing to note in this case is to not sell, to wait out the storm until the stock becomes profitable again. This might take a few days to few years. It’s impossible to predict how the stock market will behave on any given day. For example, if you would have purchased 100 stocks of Twitter when they were worth about 10 dollars a year ago, your initial investment would have been 1000 dollars. Now you would have about three to four times as much invested because over the past few years the stock has shot up to as high as 40 dollars a stock. On average the yearly historical return rate of the stock market is about 10-13 percent. Much higher than bonds and this still includes the data from the great depression and the great recession.

Overall, maintaining a good strong budget and regularly investing is how you can one day live comfortably on your own nest egg.