With a still unstable economy and the Social Security’s pending deficit, it is wise to decide early on how to maximize earnings.
Making the most of hard-earned money is giving more value to every cent netted. That means, money is not spent on unnecessary things, or it is grown over an extended period.
While it is subjective what constitutes unnecessary spending or not, there is a general consensus on how to grow money through time.
The two most common approaches to maximizing money’s potentials are through a bank’s savings account and stocks investment. Both approaches have the purpose of earning money on money that is already on-hand.
Savings account is a risk-free investment. It is a safe means of earning a modest rate from stored money, which is accessible anytime. Also, while it earns interest and is considered a taxable income, it rarely causes a significant tax payment.
Usually, savings account is either for keeping emergency funds or saving for a near-term purchase like computer gadgets or land navigation system. Again, if savings account is given a thoughtful consideration side-by-side with limiting unnecessary spending, definition of short-term purchase may be modified.
Since the Federal Deposit Insurance Corporation (FDIC) insures savings accounts up to $250,000, someone utilizing this approach surely has little to zero chance of losing money. The most that a savings account holder can lose is charges or fees from banks. Here is the catch though: there is not much to earn from this option.
In stocks investment, a certain level of risk is assumed. In this approach, the higher level of risk is the same impetus to greater earning.
Stocks investment can double or triple anyone’s capital in the course of several years and achieve a relatively higher rate of return. But like the stock prices, which fluctuate up and down every day, there is always a tendency to gain or lose money at any given time through this approach. As such, an effective handling of risk and knowledge about market conditions are pertinent. Also, it may cause a considerable taxable income.
In general, savings account is a way to “preserve” wealth while stocks is a scheme to “build” wealth. Both have ledger merits and can be equally essential components of a diversified plan, especially for retirement.
Stocks investment plays a different role and carries a distinct risk profile from fixed income investments, bonds and certificates of deposit (CD) and vice versa. One option may not be a reasonable replacement for another. Read investment books, attend financial talks, conventions, trade shows and meetings and check with banks or investment advisors to make an informed and sound financial investment.
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