You need money in order to be happy. Money may not be able to buy happiness, but if you don’t have any, you certainly aren’t going to be happy. You should understand what your financial needs are. You want a car and a house; you want to be able to spend money to go out with your friends and family, to have a good time. Maybe you want to be able to donate back to the less fortunate. You want enough to live a comfortable life. All of these things take money.
Most people won’t earn the amount of money they need to cover everything they would like to have during their lifetime. A person does not EARN (as in, from a job) enough money to sustain their way of life. Hence, the need to invest, to earn more money than you can simply by working. Ultimately you are going to decide you have to invest your money because you want more than you make.
So what do I mean by invest? Well there are people out there who have jobs and earn income. At the end of every month, they have a certain amount of money. There are also people who need money, such as businesses, entrepreneurs, the government, etc. To put it simply, investing is giving money from the person who has money to the person who needs money. In return for giving them the money right now, you are going to charge them interest. One thing you have to understand is that everyone would prefer to have money now. So in order to give away your money and not have it until later, you must have some form of compensation.
The difficult part for many people is how they are going to give that money to those people who need it. Especially, how can you give it to them in a trustworthy way? People want to guarantee that if they lend out their money, they’ll be getting it back. Otherwise they are just giving money away, which isn’t the goal of most people. You could just go to the people who need money and say here’s some money, pay me back later. However, there is no law saying they have to pay you back in a timely manner, or that they have to pay you back at all! So you’re taking a risk by lending your money. A lot of people would lose money this way and hardly anyone would want to invest because the risk would be so high.
To avoid this risk there are institutions in place: banks, financial markets, etc. All these institutions have set up different ways for you to lend your money. The choice you need to make is the way you want to give your money away, whether you want to put your money in a CD, a savings account, bonds, stocks, etc. Every form of investment has it’s own pros and cons, namely the reward you’ll get and the risk you’ll accept. In most cases, the more risk there is, the higher your reward will be. The only time this isn’t true is in the stock market. There you can get high rewards with little risk. HOWEVER, with stocks you have to be intelligent about your choices or you will lose money.
Depending on what your investment goals are, you’ll have to choose an investment option. For some people who make a lot of money, started investing early and put away a lot of money every year towards retirement, investing in CDs may be the way to go. Most of us don’t make a ton of money and don’t want to reduce our lifestyles by putting away the bulk of our money every pay period. Here, stocks would be the best option due to their high return IF they are invested in correctly. And by correctly I mean that you need to educate yourself in finance and the ways corporations work in order to pick a secure firm to invest in.
With stocks you are investing your money in a corporation in hopes that the corporation will grow. If it grows, your share of ownership will be worth more. You need to understand how the economy works, how finance, debt, credit, accounting, management, borrowing, lending, financial markets, equity, marketing, and credit ratings. This may sound like a lot, but you need to know a lot in order to make educated decisions regarding the stock market. This is your hard earned money that you are investing in stocks; you don’t want to throw it away because you didn’t know what you were doing.