Is it Really Worth Investing Small Amounts of Money?

Most of us realize it is smart to invest money. However, some people believe that unless they can invest large amounts of money it isn’t worth bothering in the first place.

So, is this true? Should you forget all about investing anything unless you happen to have lots of cash you can sink into an investment of some kind?

Lots of small equals big

Okay so that isn’t a great sentence. But it does illustrate how important it is to understand there is still power in saving small amounts of money. All those small amounts eventually add up to a somewhat larger one, and when that happens you might find you are left with a lot more cash than you had before.

You can also take advantage of forming a good money saving habit. Even if you can only save a dollar in a jar every few days, you’re forming a good habit that will stay with you for a long time to come. Not only will this lead you to save lots of smaller amounts, it also means you’ll make good decisions if you ever find yourself with a larger sum of money to invest.

The power of compound interest

You’ve probably heard of this before but it is worth looking into in more detail. When you save money you get interest paid on it. It doesn’t matter what the specific interest rate is in terms of this example – all that matters is that you get that money.

Over time you’ll get interest paid on all the money you manage to put away. However, you will also get interest paid on the interest you’ve received over time.

This means you could put away $100 and get, say, $2 interest on it in a year. If everything stays the same for year two, you will get interest paid on $102 in the second year. This will be the original $100 plus the interest from the previous year. If you put in more cash you’ll get interest paid on that as well. The following year you’ll again benefit from compound interest on whatever you had the previous year.

As you can see, it really is worth investing small amounts of money, even if you’re only using a basic savings account. It’s not just the benefit of saving the cash that you’re getting – you’re getting more cash saved up through compound interest plus the perk of a good healthy habit as well. These aspects are perhaps worth even more than putting away the money in the first place, and you’ll definitely benefit from them in the long term.

So if you thought it wasn’t worth putting anything away, you should think again. Your life might change for the better if you focus on the action rather than the amount you are saving. In the end, the total sum saved might surprise you anyway, so try it today and get a good habit going.

What is Peer to Peer Lending?

If you spend a lot of time on the internet, especially researching various financial investments, you’ve probably come across the term peer to peer lending. You may also have seen it referred to as P2P lending. Furthermore the phrase ‘peer to peer’ can often be changed to ‘person to person’. This is because money is lent from one person to another.

Does peer to peer lending have advantages over other forms of lending?

Yes it does, and this applies to both the lender and the borrower. If you need to borrow some cash and you have been turned down by your bank, peer to peer lending offers another alternative that completely cuts out the banking system.

In terms of the borrower, there is an opportunity to lend money in favor of specific loans. The benefits here are that you have the chance to earn a far higher rate of interest than you’d get if you were to invest your money in the average bank account.

Surely there are risks?

There are risks, just as there are with most other forms of investments. It’s worth remembering that owing to the increased degree of rewards typically involved, there is also an increased degree of risk.

However this risk can be mitigated in some ways. For instance let’s suppose you have a conservative $200 to invest. Instead of piling it all into one loan, you could split it into eight different $25 loans. If you were to earn, say, an 8% return on seven of the eight loans while losing out on the remaining one, you would do better than you would if you had invested all $200 in one loan that didn’t pay back.

What are the main peer to peer lenders in the US today?

There are two major players worth investigating more closely. The first is called Prosper, which states that it provides seasoned returns of approximately 10.02%. The second is Lending Club, which boasts “twenty consecutive quarters of positive returns”, according to its website. We’ve written an in depth review of Lending Club at http://everythingfinanceblog.com/lending-club-a-review.html.

Investigate fully and understand what you are investing in

As with all types of investments, it is important to make sure you understand exactly what you are getting into before you invest anything in a peer to peer lending situation. You should be well aware of the inherent risks and make sure you have a balanced portfolio to mitigate the risks, as mentioned above.

Peer to peer lending may not suit everyone, but there is certainly a market for it. If you are looking for a different way to invest that puts you in control of the specific opportunities you are investing in, this could be worth a closer look. Furthermore it gives you the opportunity to help individual people find the funds they are looking for. So it might just be the 21st century way of investing, with a bright future attached to it. We will be watching closely.

Do You Know Enough to Be a Successful Stock Market Investor?

For many people the obvious route to take when thinking about investing is to head for the stock market. But is this really the wisest route for everyone?

There is certainly a lot of money to be made with stocks and shares. However there are significant losses that can be made too, especially if you don’t know what you are doing. Unfortunately some people are tempted by the potentially big gains available. This means they can end up investing money in shares that are not right for them.

So if you are considering investing in this way, here are some points worth bearing in mind before you do so.

Can you invest money you would be happy to lose?

This is the main point to bear in mind, even if you know little about anything else. Investing your life savings in stocks and shares is not a good move. If the stock market were to crash – and as we know it has happened before on more than one occasion – you could lose everything.

This is why it is wise to split your cash and invest it in a number of different ways. It spreads the risk you are taking as well.

Do you have an interest in the stock market?

You don’t need to know the ins and outs of how a car works in order to drive one. But when it comes to the stock market it does make sense to have a rough idea of how it works and what kinds of ups and downs you can expect. Otherwise there is a much higher chance of investing money in volatile stocks. There is also a higher chance of viewing the market through rose tinted glasses – seeing only the potential gains and not the potential losses.

Do you understand not all stocks are the same?

Here we simply mean that some are issued by big name companies we’re all familiar with – Coca Cola or Microsoft for example. Others are issued by small companies that are just starting out.

Everyone wants to invest in the next big global success. If you know what to pick you stand a chance of making a lot of money – just as you would have done if you had invested in Microsoft shares right at the very beginning. But picking future successes is very difficult to do – and best done with money you can lose if that’s what it takes. It is almost a form of gambling when you think about it.

While the breakout successes will achieve the highest returns, they are very few and far between. You are more likely to make gradual returns on a more stable stock from a well known company.

So you see you may not necessarily be the right person to invest in the stock market. It all depends on your level of knowledge, how much you are willing to invest and whether you can accept the ups and downs of this particular type of investment.

Got Credit Card Debt? Then Don’t Invest

As you’ll no doubt have noticed, the whole idea behind this website is to encourage and guide you in the process of investing money. But there are always caveats to this procedure. The main one is to note that debt should always be taken care of first. This is because most debt will have a higher rate of interest attached to it than you could ever hope to gain on an investment.

Should you clear all your debts before you start to invest money?

Not all of them, no. For instance a mortgage would not be included because most mortgages run over at least 25 years. You’d be waiting a long time to start any kind of investment at all if you were going to clear your mortgage first.

No, the kinds of debts we’re talking about here relate to credit card debt and store card debt. These will undoubtedly have much higher rates of interest than you would earn on your investments, so it makes sense to pay these off first.

Work out what debts you have

This is the most important step and also the first one you should take en route to clearing them. Write them all down and list the amounts you have in each case. For instance if you have three credit cards list all the balances and note down the rate of interest applicable to each one too.

The process of clearing them should work like this:

* Pay at least the minimum on each balance each month as requested
* Work out which credit card has the highest rate of interest
* Pay off as much of the most expensive credit card balance as you can each month
* Clear the most expensive balance first, then work on the others in turn

Note how much you spend on clearing those balances each month

The more you can put towards clearing your debts each month the better. But make a note of the cash you can devote towards this. This will help you figure out how much you can invest in other things in the future, once your debts are cleared.

The next step beyond your debts is to save enough for emergencies. Then you can get started investing properly in stocks, shares and other investment opportunities, depending on what you want to opt for.

It might seem counterintuitive to ditch any investment plans you might have in favor of going through the above steps. But the sooner you clear any debts like these that you have, the easier it will be to free up more cash to invest in the future. This will put you in a much better financial position, and you will be able to find out which investment options will be best for you as a result.

So take a fresh look at your finances now and see whether there are any debts you should be focusing on ahead of making those all important investments.

Teaching Kids About Money and How to Invest It

Parents have many essential skills to teach their kids from a very young age until they grow into adults. But surely one of the most important ones is the ability to understand the value of money, how to use it and how to make the most of it by trying to invest it wisely.

Understandably this is something that some parents struggle with. Indeed some adults struggle to invest their money wisely or even to manage it successfully. In this situation it would be difficult to know how to teach your kids something when you don’t know about it yourself. It may even do damage to try teaching something in this situation, so if this describes you your essential first step would be to educate yourself before moving on to educate your kids.

What can you teach your kids about investments?

This really depends on what age they are. Younger kids can start learning about money and what it can buy in very simple ways, such as through role playing. Bring out the toy groceries and the play money and start there. Understanding what money is and does and what it can get you is only the beginning, but it’s a very good place to start.

Different kids will learn at different paces, but as with other things in life they’ll start asking questions before too long. You can use this to gauge what they are ready to learn and take in as you go along. For example they might start by asking about money in general. It might be a while before they are ready to find out about investing and how this helps to grow your money into something more.

Bite sized chunks of fiscal facts

It’s worth noting that money and investments are two very different things. Thus it makes sense to ensure you focus on one before the other. Also don’t try to teach your kids too much in one hit. Learn to gauge their attention span so you can fit in your fiscal lessons in bite sized chunks. If you try to bombard them with too much in one go you will end up boring them and they’ll associate boredom with money and investing. That’s not what you want to achieve.

Remember too that you can teach them valuable lessons while you are out and about shopping. You could also let them pay money in for you at the counter at the bank. This can be a great way to familiarize them with money and how it all works.

As you can see it only touches on the surface of teaching your kids some of the most valuable lessons they can take forward with them into their lives. No two parents will take exactly the same approach to teaching their kids about finances. The trick is finding the right approach that will work for your own kids, so you always get the best results. This will set the right tone for the future.