For the last post of the month, I want to focus on creating a stream of income through investing the money you earn from your business. Before going into any ideas on this topic, I want to make sure that these are only ideas, and are not meant to be financial advice. Nor do they apply to all of you who are reading these lines. The one piece of advice I want to start with: talk to an investment adviser that will take into account your personal financial situation and create a plan specifically designed for you. Of course, there is no obligation for that person to be me, though I can be - for anyone who would like a consultation.
When deciding to invest, the first thing you need to know is that you have to make a long-term commitment. Getting into the market should not be seen as a short-term plan to get rich because that is very risky. There are people who are preoccupied with timing the market and buying stock that they estimate will grow in value and then sell it for more; also a great many of them end up losing even the shirt off their back. Therefore, unless you can afford to lose the money you play in the market, this most likely is not the best scenario for you.
The reason I decided to have this post as part of the month on streams of income, is that when you invest you are creating a stream of income for the future. This is a way to build your egg-nest that will generate your stream of income. It can be your retirement plan or it can be an investment that generates income that has no preferential tax treatment. This is a choice between qualified and non-qualified plans, in financial speak. Here is the translation:
1. Qualified plans receive preferential tax treatment - money that goes into these plans is either before-tax, which means it goes in before being taxed and gets taxed when it comes out; or the money goes in after-tax and is taken out tax free. These plans are either Traditional (with before-tax money going in) or Roth (with after-tax money going in). The money you invest in these plans has to be for your retirement or else you lose your tax advantages, and may also be liable of penalties.
2. Non-qualified plans do not carry any tax advantages - you are paying taxes on the money going in and also have to pay taxes on any gains as you accumulate them. This is the type of long-term investments that one would make because they want to increase the value of their estate and the market has traditionally had higher returns than any other investments. There is a risk involved because there are no guarantees of a return on the investment. The growth of the funds usually beats anything a savings account can generate over a long period of time.
My hope with this post is that I can inspire some of my readers to start investing (or continue) so they can have a stream of income for themselves in the future - be it in retirement or before.