If you are fortunate enough to have some extra income after paying your bills, investing it can be one of the smartest decisions you will ever make for yourself and perhaps your family. Rather than have it simply set around in a bank account that offers next to nothing in terms of interest, investing in the stock market or other areas can pay off in a big way. As to why you should invest your extra income, here are some of the best reasons.
A Nest Egg for Retirement
Unfortunately, many people today have little if anything saved up for their retirement, even if they have been hard at work for many years. If you don’t want to join this group, investing your extra income will allow you to build up a nest egg for your retirement. There are more traditional ways to build a retirement fund such as a 401K or a Roth IRA. However, there are many other options out there available to you. Depending on how much you have coming in each month, you may want to do a short-term investment that you can take out and invest in a rental property for example. Other common options are investing in the stock market or by funding a company that you believe in, however, the options are countless and continuing to grow.
Create Wealth Over Time
When you invest your money, you actually put your hard-earned money to work for you. By investing in the stock market and other financial options, you set the stage to create wealth over time. Once you do this, you and your money are working smarter, rather than harder. Many younger people choose to put their money in a savings account and older generations tend to invest in CDs, both of which aren’t the best way to give you a substantial return on your investment. A common reason for this is probably that a savings account and CDs are low risk and require almost no knowledge to get a return on their investment. However, the learning curve shouldn’t turn you away from leveraging more lucrative options. If you are concerned about the learning curve related to investing in the stock market, then you may be interested in outsourced trading solutions that can take care of the trading for you. Some outsourced solutions include having a professional trader take care of it and some options are more technology-based.
Take Advantage of Pre-Tax Dollars
One thing that will immediately jump out at you is how you can invest your extra income to take advantage of pre-tax dollars. The best example of this is by investing your money into a 401(k) retirement plan offered by your employer. Along with saving you thousands of dollars per year in pre-tax money, your employer will usually match any contributions you make to the 401(k) plan, increasing your investment return even more. The 401(k) plan is a good start, especially if the company you work for provides a match option. However, if thre isn’t a match option at your work, then there is probably a better investment option out there such as an IRA plan that requires a little more work for a much larger return.
Reach Your Financial Goals
Most people have some sort of financial goals such as a downpayment for a home or a new car. By outlining your financial goals, you’re going to have an easier time understanding if and what type of investment you should use your extra income on. By choosing investments that will produce a higher rate of return in a shorter period of time, you may soon find yourself buying your first home or having the peace of mind that comes with knowing your child’s tuition is money in the bank. In addition, there are typically regulations for when you can invest and when you can pull money out of that investment, so be sure to review that and compare it to your goals. That way you make the best decision for your needs and situation.
Even if you only invest a few dollars, doing so on a regular basis will soon add up to more money than you ever imagined. By using common sense and seeking out the advice of financial professionals when needed, you’ll be well on your way to creating wealth and meeting your financial goals.
About the Author
Anica is a professional content and copywriter who graduated from the University of San Francisco. She loves dogs, the ocean, and anything outdoor-related. You can connect with Anica on Twitter @AnicaOaks. She recommends this company when it comes to outsourced trading solutions.