The wealthy know one thing that most of the rest of us don’t – how to make good investments.  Money makes more money and the more you have the more you can make.  Yes, investments require money.  But you can learn to make investments like the rich without investing millions. 

The best place to start is at the beginning.  It may be exciting to think about making tons of money and large investments.  But the truth is that you need to learn to walk before you run.  Start out small and work your way up.  Learn to flex your investment knowledge before moving on.  Remember that the better you get at making investments the better your return will be when you are able to invest more money.

First, eliminate your debt.  Why should you do this before you start investing?  The answer is simple.  The rate at which you need to pay back your debt is much higher than any investment return you can get.  Begin your investment plan with a schedule to pay off your debt.  Use money that you would have earmarked towards investments and make double payments on your credit card bills.  The only debt that you can safely have is typically your home mortgage and your car payment. 

Once your debt is cleared off you can safely begin investing.  How do you know how much money you can afford to put towards investments?  The rule of thumb is to pay yourself first.  This means pay your monthly expenses including your entertainment allowance and all your bills.   The best amount to invest is the highest amount you can comfortably live without.  In other words, invest the most that you possibly can. 

What happens if you need the money quickly for an emergency or if you lose your job?  There are two types of investments, short term and long term.  Short-term investments are considered those that you can liquidate easily and quickly, usually within a month or so.  Taking money out of these investments usually won’t cost you anything, although you won’t make as much money as you would have hoped.  Long-term investments are those that may require a longer time to see return on your money and may have restrictions and penalties for taking the money back sooner than expected. Here are some examples of short-term and long-term investments.

Short-term investments include your savings account, money market accounts and CD’s (certificate of deposit).  Savings accounts generally don’t have a good return – usually between 2% and 4%, but they are available immediately.  Money market accounts aren’t much better.  The return usually fluctuates based on the market but is usually slightly higher than a savings account.  A CD usually offers the highest interest rate of the short-term investments.  They are available in different lengths of maturity but all are considered short term.  While you can get your money out early if need be, there is a significant penalty for doing so. 

Long-term investments include bonds, stocks and mutual funds. Bonds are considered the safest of these and offer a fixed income.  Bonds are designed to mature in a specific number of years at which time they are considered completed.  Stocks are more risky because the value fluctuates on a daily basis.  Mutual funds are a way for investors to combine their investment money to buy a group of investments that may include some stock and bonds. 

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