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Research and Invest

Updated on February 13, 2015

Investing is paramount to achieving financial independence. You cannot save enough to be able to retire and live off of for the rest of your life. You need to have a nest egg that provides substantial passive income. Minorities seem to have this misconception that all investing is extremely risky. While all investments do have a certain level of risk, the risk can be managed with proper research. It is actually riskier to not invest because you will forever be dependent on one source-your paycheck from you job which we all know can be taken away without any warning.

Investment Categories

There are three main categories of investing:

  1. Retirement
  2. College
  3. Wealth Building

Retirement

If you have a job that has a retirement saving plan that matches your contribution, you need to contribute (fully) to the point of the match. I know you are saying “My paycheck is already too small; I cannot afford to have anything else taken out of my check.” This is even more reason why you need to invest ASAP. If your paycheck is already too small now what do you think will happen once the check stops and you only have social security checks (which will only be a fraction of your current check). Do not pass up free money. Invest as soon as it becomes available.

If your employer does not match your contributions or you have extra money after fully funding your employer’s plan then you should invest in Roth IRA. Unlike 401K, 403B or 457 accounts the money in a Roth IRA grows tax free as long as you do not take the money out before you are 59 ½ years of age. Currently, you can contribute up to $5500/ year. I strongly urge you to open one of these as soon as you can so that compounding interest has the maximum time to work it’s magic.

College Savings

When it comes to college savings plans ESA’s are the way to go. Currently, you can contribute $2000/year which grows tax free just like a Roth IRA. If you start this fund as soon as your child is born they should have plenty of money when it is time to use it. If you start late and the ESA will not be enough then you should open 529 plan, as well. Most people think you have to invest in the 529 in your residential state; however, this is not true. You should research all states’ returns and invest in the state with the best return history.

Wealth Building

As you can see from the table below there are multiple ways you can invest to build wealth. My suggestion is to pick a few that interest you, do the research and start as soon as possible. Once you make your first profit it will get easier to repeat again and again. After a while it will become second nature and you will be one step closer to financial independence.

Homework

1) Find out at least three ways you want to start investing. Do the research and get informed about your decision. As soon as you have so extra money INVEST!!!

2) Go to http://www.bloomberg.com/personal-finance/calculators/retirement/ and use the calculator to see if you are on track for retirement? Do you need to increase your contributions?

3) Join me tomorrow.

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