Did you know that the 14th of August is recognized as National Financial Awareness Day? With that in mind, here are some tips and tactics to help you grow your finances and comprehend financial concepts!
To keep your freedom as an immigrant in the United States, you must excel at two things. The first is knowing how to manage money, and the second is knowing how to keep your legal position.
The two major strategies you need to be good at managing your finances are a) cutting down unnecessary expenses. b) growing what you have. Keeping that in mind, today our topic of discussion is growing your money or investing. In case you didn’t know: If you don’t grow your money, you will lose it since inflation devalues money by 2% per year.
Returning to the main topic, There are two ways money can grow. One is by debt, another one is by equity. Say, you have 1000 dollars and your friend needs it. You can either choose to lend him that money and get interest on it. Or your friend can start a business and you can be a shareholder in it. The first way is debt-based and the second way is an equity-based investment. The main advantage of debt-based investment is that it is safe. Even if your friend loses everything, he has to pay you back the debt he took from you with interest. The main advantage of equity-based money is that you can make more profit, but you can also lose your principal money (for example if your friend’s business fails). In short, the ultimate rule of investing is, the more the risk, the more chances of you making a high profit.
Now that we’ve covered the theoretical basics, let’s dive into all that we have gathered in the last three years of investing.
The safest way to keep your money is in a savings account. You’re basically putting your money in a bank, so put it in savings rather than checking. Ally and Barclays are the two greatest savings accounts, in our opinion. Both provide excellent savings account interest rates (1.15 per cent). To be honest, we prefer Ally more because they refund your ATM fees regardless of whatever ATM you use in the United States. However, savings, due to its low profit, is not a highly successful kind of investment.
- Certificate of Deposits/bonds:
Certificates of Deposits are almost like bonds. They provide better interest rates than savings accounts. However, you must lock your money for a longer length of time (typically 3-5 years) if you want the entire interest to mature. The best CDs that we have discovered are Discover and Synchrony Bank.
- Peer to Peer:
If you’re looking for a way to invest in debt, this is the way to go. In the case of peer to peer, instead of lending money to a bank, you’re effectively lending money to individuals. Our favorite one would be Lending Club and you get a $150 signup boss if you join using this link. The average net annualized return is around 5–7%. You can also try Prosper, which is another popular alternative.
- Common Stocks:
The best way you can make the most amount of money (or lose the most, remember high-risk high gain) is through investing in common stocks, colloquially known as the stock market. Investing prudently in the stock market requires higher than average knowledge on how investing in general works. You can try brushing up some basics through Investopedia to learn more.
Going into detail about this subject is beyond the scope of this blog. So today we will focus only on one of the most popular types of common stocks, which are called ETFs or Exchange Traded Funds. To say in layman’s terms, ETFs are kind of like a collection of individual company stocks, bonds, etc. In comparison to individual company stock, say Facebook (FB) or Google (GOOGL), we can also call them index. So there can be technology ETFs which mash up technology company indices, financial sector ETFs, and so on. If anyone is new to investing in the stock market, I would suggest going slow and go with common/popular ETFs with lower gain.
To start investing in small numbers as a student, the best is the Robinhood app. It’s easy to start, has no trading fees for buying and selling stocks.
- Automatic Managed Funds (Robo Adviser):
Managed funds are a good option for those who are new to equities investing or don’t want to know too much about it. Basically, there are financial institutions whose sole purpose is to manage money for people who are financially illiterate. With the growth of machine learning, a concept known as Robo Adviser has gained a lot of traction in recent years. They ask you several questions online and then offer and maintain an automatically created list of funds for you based on your current situation. It’s simple to get started with, and you don’t need any financial understanding. The one we would suggest to you is Wealthfront.
On an endnote, the goal is to not make huge amounts within a short time, rather choosing an investment plan that will be sustainable in the longer run. You can start slow and upgrade your investments along the way.
If after reading this article, you’re wondering how to do all of this alone, here’s the good news: you don’t have to do it all. Concentrate on a few tasks and complete them well. It all starts with investing in yourself. Do lots of research online, read plenty of books, listen to podcasts. You will get there, eventually!
Disclaimer: This article is not intended to provide professional financial advice. Rather, it is based on the author’s own personal experiences. That being stated, the writer is not responsible for any financial decisions made as a result of this advice. Please read and use this knowledge at your own discretion.