"If I gave you a million dollars today, what would you do with the money?" asked an economics professor at the start of his class. One student raised his hand and said confidently, "I would buy my dream house for my family." Another student confidently stood up and said, "I will buy a Lamborghini Aventador." Then another student said, "I will buy land and start a farm." One student said, "I will open a savings account and save my money."
Then the class president stood up and said, “I will look for a company where I can invest the money.” "Why investing?" the teacher asked. "I want to grow my money because I do not think that my million dollars will last longer than a decade, so I want to grow my money," responded the student.
Why should we choose to invest? We work hard to earn our money, so we need to be wise in growing it further. One effective way to build wealth is by investing. Let your money work for you instead of buying a fancy car or locking it away somewhere stagnant.
We can invest our money to generate additional income and build wealth in many places. Entities like real estate, mutual funds, precious metals, stocks, and small enterprises are the best and safest way to invest. However, investment in those entities will depend on your income, savings, cash on hand, and assets.
Never think that investment is only for those who generate higher income than you. Income is the starting point when planning an investment because it is only possible to invest money if you have money to begin with. Think of ways to save money from your income after all the expenses are paid, and use this money to start investing. Regular budget planning and strict adherence to the budget will help you save money to begin investing.
When is a good time to start investing?
You may now be thinking about when to invest. The best time to begin investing is today! The first step of investment is to check your financial statement. Your readiness to invest will depend on your financial health.
Try to be consistent and look for other opportunities to increase your income so you can increase the amount of your extra money by the end of the month. Start building and saving capital out of your income. Remember that you are making a financial foundation for your future wealth. It is always best to be free from debt and achieve the peace that comes from financial freedom. After carefully managing your finances, you will be ready to commit to some financial investment.
The next big question is where to invest. There are many different things you can consider investing in. Investment opportunities include the stock market, real estate, e-commerce, and small companies.
1) Stock Market
Investing in the stock market is quite a passive investment where you participate in the company in monetary form, but you let them direct and handle the company. Investing in a stock market provides capital to a company that it can use to fund its operations, launch a new product, and expand its business.
In exchange for your investment, the company will issue a share of company ownership, including rights to company assets and profits. Imagine investing in a company that has continued to grow for more than ten years. Your dividend and the value of your share of stocks will continue to grow. I hoped to invest in Amazon or GoDaddy a couple of years ago when they opened stock shares in the market.
2) Real Estate
One of the best places to consider investing in is real estate. Simple because the value of land never and property typically increases in the long-term. In real estate, the cash flow is steady and protected from inflation because the value of the assets grows above the inflation rate. I knew a few people who built an apartment, and after 30 years, the apartment is still generating high revenue.
The industry of e-commerce was boosted by globalization. The introduction of the internet, accessible transportation, and faster communication is the backbone of e-commerce. This entity uses the internet to buy or sell a product and collect payment. The ease of shipping makes it possible for the buyer and seller to have access to their product. Faster communication makes the negotiation easy and comfortable. Businesses can easily reach the consumer through the internet.
4) Small Businesses
Bakeries, convenience stores, printing businesses, retail, and reselling businesses are examples of small enterprises. You can start a small business with some startup money and find a demand in your area. All small enterprises are operating with small expenses but can give greater profit.
There are a few key indicators to check whether investing in an entity is best. These key indicators may need calculation and analysis, but once done, it can help you decide whether to enter an investment.
- Payback Period Method - This method will help us know when we will be able to regain the expenses we made in an investment. This is done by dividing the initial investment cost by the annual dividend or cash flow. For example, you invested in real estate, and your investment has a $10,000 annual cash flow. If you invested $50,000, then your payback period is five years. Meaning after five years, you regained your initial investment cost.
- Liquidity ratios - This ratio will help you determine whether the company's available cash can pay its short debt. This is important because you do not want to enter a company whose debt exceeds its assets and equity. The equation is pretty straightforward and simple; you simply divide the current company assets over current company liabilities. The higher the liquidity ratio, the better for the company because it states the assets can cover liabilities.
- Profitability ratios/Gross Profit Margin - The sole purpose of investing is to grow your money. Therefore it is best to know if the company is making a profit or not before investing. This ratio will tell you the financial performance of a business. The equation is done by subtracting the Cost of Goods Sold (expense) from sales. If Samsung has $100,000 in sales and $75,000 in expenses (cost of goods sold), its profit is $25,000.
- Market Value Ratios – This is commonly used in the stock market. The Market Value Ratio is used to analyze the company stock price compared to the market price. Most of the time, this ratio is made available to all company profiles to help determine the company's value in the market.
These tips will help us decide whether to invest in a particular company or entity. Therefore, investment is one of the best ways to grow our money. Successful investment requires excellent cash management, planning, analysis, and calculation, but these are worth it. Most of us will not have a chance to receive a million dollars without effort, but we can make it on our own through hard, smart work and proper investment.