Covid-19 has not only affected our health and our lives. But it has caused serious economic disruption. The pandemic has brought a global recession.
The World Bank predicted that the global economy would shrink. The common Joe felt this downturn as jobs were lost and the inability to pay their bills. Thankfully, the government provided some reprieve to our financial plight.
After taking care of their needs, some were able to set aside some of the financial aid. If you count yourself as one of these people, do you have a plan on what to do with the extra cash? Let us discover some prudent ways on how to use the leftover.
Real Estate
The amount that you have gotten from the stimulus checks and the tax refunds may not exactly be enough to pay the down payment. But you may be able to invest in real estate after you take out a mortgage loan.
This investment may be capital-intensive. But this is very lucrative. What is even better is that it can become a passive source of income. Unlike other tangible, non-current assets, land does not depreciate.
To get the most out of this investment, you need to have it in the proper state. You might need to spend more money. Skipping this step will make your property idle.
The current economic situation makes it an excellent time to borrow money to fund your real estate venture. Interest rates are at an all-time low.
Savings
Investment does not necessarily have to be as grand as the purchase of a real estate property. You can choose to increase your emergency fund. From what we have learned in the pandemic, it is wise to have at least 3-6 months’ worth of living expenses.
One of the most obvious effects of Covid is the loss of jobs. This eventually led to a loss of income. Having an emergency fund will prevent such a troublesome circumstance from happening to you.
Having an emergency fund will prevent you from borrowing additional money to help you get through the tough times. This reserve can help pay for fortuitous events that may have cropped up. But you have to remember that fortuitous event does not include seeing something nice while shopping.
Certificate of Deposit
Before you think of how to invest your extra funds, you have to ask yourself when you want to see the returns. If you want easy access, you should increase your emergency funds. Or you can also opt for opening another account besides what you have set aside for an emergency.
If you want to engage in a long-term investment, you can purchase a piece of property. Or you can buy shares of stocks, which is an option that we will discuss later. But if you are thinking of a medium-term investment, you can go for a Certificate of Deposit.
A Certificate of Deposit is one type of time or term deposit. This bank product has a pre-determined maturity date. The term may be as short as one year or maybe as long as three years. Its interest rates are higher than the regular savings account.
Stocks
Purchasing stocks is a great way to prepare for your future. You can even bequeath this to your children when the time comes. But before doing anything, you have to do a little research. You have to review the financial statements of the different companies that you want to invest in.
To start things, you have to understand the nature of stocks. You must know the types of stocks. There are three basic kinds, namely: common, preferred, and treasury.
Some accountants argue that the preferred stock is technically a company’s liability. They make this assertion because owners of the former get priority to a company’s assets and earnings when the entity is liquidated. The company also has to pay them first when a dividend is declared. The interest rates for preferred stocks are higher than common stocks.
One of the main advantages of purchasing common stocks is voting rights. Unfortunately, it is very volatile. You have no guarantee of the company’s profitability.
Once you understand the basic theory about stock ownership, you must study the profitability of the different companies. Horizontal analysis of financial statements would be the appropriate tool for this.
Financial stability is a common goal. It can be achieved with some frugality and wise investment decisions. It will give you a comfortable retirement and some coverage during hard times.
After doing a little research, you can achieve this goal. Financial stability might also be your gift for posterity.