Investing is a way to make money grow, by buying shares of stocks, mutual funds, bonds, or real estate. When you invest, there is risk that you could lose the money you invest; in general the greater the earnings you can make, the greater the risk. You can save for long term goals, such as retirement and college education, by investing. Learn how to save for emergencies, short term and long term goals, and become an informed investor.
See this video to learn how to make a budget and plan your finances.
0:01 Every month, Michael ran out of money just before payday. 0:06 He had to skip paying some bills and pay some bills late. 0:10 He hated that. 0:12 So Michael decided to make a budget to see if it would help 0:15 him pay his bills when they were due. 0:18 He wrote on a budget worksheet how much money 0:20 he made each month. 0:22 Then Michael looked at what he spent the last month. 0:25 He used those expenses to write what he thought he would 0:28 spend this month. 0:31 His expenses were higher than his income, which he knew. 0:34 But now he knew where his money went. 0:37 He started cutting. 0:39 He cut money for eating out, movie tickets, and other 0:43 things he wanted but couldn't afford all the time. 0:47 That solved the problem and even gave him $50 0:50 extra for the month. 0:51 He put $10 back in his budget to rent movies. 0:55 And he saved the rest. 0:57 That month, Michael carefully followed his budget. 1:00 If he spent more in one budget area, he cut from another. 1:04 He had enough money to pay all his bills on time. 1:08 Michael felt much better with a budget.
Treasury securities are debts issued by the federal government's Bureau of Fiscal Service. When you buy a treasury security, you are lending money to the federal government for a set amount of time. In return the government promises to pay you back the entire amount, also known as the face value, when the security matures.
There are several types of treasury securities:
Treasury Bills—Short term securities that mature between a few days and 52 weeks.
Treasury Notes—Medium term securities that mature between one and 10 years.
Treasury Bonds—Long term securities, with a 30 year term that pays interest every six months, until the bond matures.
Do you have a financial goal in mind, such as saving for retirement, paying for college, or buying a new house? If so, then you may decide to invest your money to earn enough to fund your goals. Before you invest, make sure you have answers to all of these questions:
How quickly can you get your money back? Stocks, bonds, and shares in mutual funds usually can be sold at any time, but there is no guarantee that you will get back all the money you invested. Other investments, such as limited partnerships, certificates of deposit (CDs), or IRAs, often restrict your ability to cash out your holdings.
What can you expect to earn on your money? While bonds generally promise a fixed return, earnings on most other securities go up and down with market changes. Keep in mind, just because an investment has done well in the past, there is no guarantee it will do well in the future.
What type of earnings can you expect? Will you get income in the form of interest, dividends, or rent? Some investments, such as stocks and real estate, have the potential for earnings and growth in value. What is the potential for earnings over time?
How much risk is involved? With any investment, there is always the risk that you will not get your money back or the earnings promised. There is usually a trade-off between risk and reward--the higher the potential return, the greater the risk. While the U.S. government backs U.S. Treasury securities, it does not protect against loss on any other investments.
Are your investments diversified? Some investments perform better than others in certain situations. For example, when interest rates go up, bond prices tend to go down. One industry may struggle while another prospers. Putting your money in a variety of investment options can reduce your risk.
Are there any tax advantages to a particular investment? U.S. savings bonds are exempt from state and local taxes. Municipal bonds are exempt from federal income tax and, sometimes, state income tax as well. Tax-deferred investments for special goals, such as paying for college and retirement, are available that let you postpone or even avoid paying income taxes.
More Information on Investing
To learn more about investing, refer to these resources:
A financial professional can have multiple titles and be authorized to provide various services, including investment, financial planning, and insurance products. When researching a financial professional, find out what the titles and licenses mean, as well as the educational, work experience, and ethical requirements. Keep in mind that a professional title is not the same as a license. The Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and state regulators do not grant or endorse any professional titles.
When choosing a broker or investment adviser, research the person's education and professional history as well as the firm the person works for. Make sure you have answers to all of these questions:
Has the person worked with others who have circumstances similar to yours?
Is the person licensed in your state? Your state securities regulator lists individuals and firms that are registered in your state. Ask whether the regulatory office has any other background information. To find out how to contact your state securities regulator, consult the North American Securities Administrators Association (NASAA).
Has the person had any run-ins with regulators or received serious complaints from investors? Contact your state securities regulator or the SEC. To review licensing, employment, and disciplinary information, use FINRA's BrokerCheck tool.
How is the person paid? Is it an hourly rate, a flat fee, or a commission that depends on the investments you make? Does the person get a bonus from their firm for selling you a particular product?
What are the fees for setting up and servicing your account?
Resources to Help You Choose a Financial Professional
For more information on choosing a financial professional, refer to these resources:
The Commodity Futures Trading Commission's (CFTC's) SmartCheck allows you to check the background of financial professionals and stay informed on the latest fraud schemes.