Building assets is the key to healthy personal finance. Assets are primarily the money you have to your name and the things you own that help you earn more money in the future, like stocks and real estate. Building assets can seem intimidating, but by making plans for how to use all the money you earn, you can increase your wealth and take control of your finances.
1. Certificates of Deposit
A certificate of deposit, or CD, is a low-risk financial investment offered by banks.
How they work is simple: You loan the bank money for a set amount of time known as a “term length” and you gain interest on the principal during this time.
A typical term length is anywhere from three months to five years. During this time, you won’t be able to withdraw your money without taking a penalty hit. BUT it’s pretty much assured that your money is growing at a fixed rate.
The interest rate varies on how long you are willing to invest for. The longer you loan money to the bank, though, the more you can earn.
2. Bonds
Much like CDs, bonds are like IOUs. Except instead of giving it to a bank, you’re lending money to the government or corporation.
And they work similarly to CDs as well — which means they’re:
- Extremely stable. You’ll know exactly how much you’ll get back when you invest in a bond.
- Guaranteed a return. You can even choose the amount you want a bond for (one year, two years, five years, etc.).
- Smaller in their returns, especially when compared with aggressive investments like stocks.
3. Dividend Paying Stocks
When you purchase stocks, many of those companies pay out a portion of earnings to shareholders on a regular schedule. These are called dividends, and ooh-wee… let me tell you — There’s few things more exhilarating than a big fat check with your name on it, courtesy of your stock market investments.
Typically, dividend paying stocks are the larger, more established companies. In fact, there’s a whole set of stock market darlings known as “The Dividend Aristocrats” who have earned their title by increasing dividend payouts for 25 consecutive years or more.
The percentage rate of dividends varies by company. If you’re an investor in EcoLab, you’re currently looking at 1.12% dividend rate. If you felt like juicing up those dividend yields, you could always move some money to a company like AT&T, whose annual dividend yield is 6.05% right now.
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