Things you could do right now to start investing

You want to start investing but you cannot find time for analysis and education about investing. If you want to start with investing you should certainly find some time, but in the mean time, here is what you could do right now.

1. Eliminate your debt

Eliminating debt is not a classic example of investing. But I think that should look on paying credit card debts as a kind of investment. The reason for that is the fact that average credit rates is 14% annually. You will have to try really hard to beat 14%, and not to mention that it can be much higher, up to 20 or more percent. Keep in mind that average return rate on US stock market is about 10.5%. Therefore, if you have $100 in your pocket, and you don't need that money too much, go right now and payout your debt even if it is a small part.

If you have several credit cards, than you should pay out the one with the greatest rate. For example, let's say that you have three credit cards: the Credit card A with $1000 of debt and 15% rate, the Credit card B with $3000 of debt and 16% rate and the Credit card C with $200 of debt and 18% rate. You should payout the debt on the Credit card C first, and then start paying out debt on the Credit card B.

There is another hint that is general in life: Simplify. That means that you should tend to eliminate number of credit cards in the game. The reason is that you cannot maintain a long list of credit cards. If you have ten credit cards, than there is 10 different debts, 10 different rates and each factor that could be specific is multiplied by 10. Therefore to track what is going on with your credit cards you should check at least 30 and more parameters. It takes time to find all necessary data. Also, if something is too complicated that would lead you not to do it. And not tracking your credit cards is very dangerous.

Does it mean that you should not have any credit card? Yes, almost any credit card generates some expenses even if you don't have any debt on it. It is much better to have cash instead of debt. On the other hand, life is full of unexpected events, so some kind of cushion in the case of emergency is certainly necessary. So what should you do? Eliminate all your credit cards and take one with the smallest rate and smallest yearly fee. And don't use it.

2. Quit with smoking and junk food

What does smoking have in common with investing? First of all smoking costs you. You can calculate how much money do you smoke each year relatively easy. Determine how many packs do you smoke each month, multiply that with 12 and with the price of a single pack. And that is not all. If you smoke there is a greater probability that you contract some kind of disease in life, and any disease, even not so dangerous will pull money out of your pockets in the form of medications and in the form of smaller income. And there is more. If you want to buy some insurance, smokers usually pay more for it.

What does junk food have in common with investing? More than you think. Junk food is almost as dangerous as smoking. Eating a lot of junk food leads to poor health and the same problem with money as smoking.

3. Track your expenses

Use your favorite spreadsheet program and start tracking your expenses. Keep it simple in order to be able to do it regularly. Amount, date, and category is enough for the start. The category is your classification of expenses. For example, gas, tires, broken windshield you could put in the car category. One category could be junk food, or eating out or something like that. For some time don't do anything, just track expenses. After several month you will notice if you need some more categories or to tune your system up. Anyway after several month you could begin with analysis of tracked expenses, i.e. to sum them using your categories. Then you could act on it. For example you could change your car as it might be cheaper than to use existing one.

4. Find a blue chips that allows drip investing

What is he talking about? First of all, blue chips are very large and stable companies. Drip investing is a kind of investing where one could invest a small amount of money regularly. For example you could invest in Coca Cola as low as $10 per month. Ten bucks per month is certainly feasible for anyone. You don't like Coca Cola? Try Pepsi! Or try Google with "drip stock list".

Best investment for you is yourself

Let's assume that there is an Average John with Bachelor's degree and there is an Average Paul with high school degree. According to the U.S. Census Bureau Average Joe will earn $52,200 per year, and Average Paul will earn $30,400 per year. What does it mean? That means that during 40 years of working Joe will earn around 2,1 million dollars, and Average Paul will earn 1,2 million dollars. The difference between two is $900,000 and that is a lot of money. You could say "Yes, but Average Joe will invest four year of his life in learning, and, in addition to that, he must pay for that".

Let's see how expensive is Bachelor's degree. The average tuition and fees at four-year public colleges for the 2006-07 academic year is $5,836 and with room and board, the average public college tuition for in-state students is $12,796. For four-year private colleges average tuition fee is $22,218 and with room and board that would be $30,367 on average.

We can now calculate what is going on with Average Joe. First of all he will have to pay $120,000 for fees and room and boarding. So we could say that with $120,000 of investment Average Joe will get during 40 years $900,000 giving 5,17% annually. That is not much but it is not that bad also. This calculation was the worst case scenario. Actual cost of Bachelor's degree is much smaller on public college, about $12,796 per year meaning that costs would be about $50,000 giving 7,49% annually. For good students there are scholarships, and he could also work during certain periods of his schooling, so this figure of $50,000 is actually much smaller on average, probably somewhere in area of $30,000 with 8,87% of annual return. But that is not all, you will start getting those $900,000 immediately after receiving Bachelor's degree, and with moderate investing 8,87% of annual return could become much, much higher. Also, you should consider that increase in education and income results with better health and longer life.

So what you should do? Go to school. If you just came back from school, go for some more school. A person with doctSave Noworal degree will earn about $89,000 per year or 3,4 million during 40 years of working. People with professional degree will benefit even more (M.D., J.D., D.D.S., or D.V.M.).

What Is Return On Investment (ROI)

Return on investment is a performance measure that can be used to compare several investments. ROI is calculated as net income of an investment divided by the cost of the investment.

ROI = Net income / Investment cost

where

Net Income = Income from the investment - Investment cost

ROI is usually noted as percentage, meaning that 10% of gives us 10 cents per each dollar of investment. If you would like to have ROI as percentage then you should calculate it as:

ROI = (Net income / Investment cost ) x 100.

For example if Net income is 1,200$ and Investment cost is 10,000$, then ROI is 1,200/10,000 = 0.12 or stated as percentage ROI is 12%.

If ROI is negative then the investment should not be considered because the investment is a loss. If ROI is positive then investment is profitable. Higher ROI is better than lower ROI. A project with the highest ROI will have the highest profit rate.

Other measures than money can be used to measure the cost and the income. That is the reason that ROI is very flexible and can be manipulated. Therefore, it is necessary to know how the ROI is calculated, i.e. what are the costs and what are the income? For example, the Accounting ROI is equal to the net income divided by the total assets. ROI works just fine if income and outcome can be easily identified.

ROI can be also used with not so precise definition of income and outcome. One could consider customer satisfaction, accuracy, average shopping chart or something else. For example one could calculate ROI for Customer satisfaction (where CS is short for Customer Satisfaction) like this:

ROI = Change in customer satisfaction / Investment cost

where

Change in customer satisfaction = CS after investment - CS before investment.

What should you do with ROI? First of all, if you have only one investment ROI could only show if your investment is profitable (ROI > 0). If you have several investments and you consider terminating one, probably you should terminate the one with smaller ROI. Also, if you have several investment opportunities, you should choose the one with the highest ROI. Of course you should consider other factors involved, such as risk, necessary minimum amount for investing...