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It is always exciting to hold your first paycheck. But do you know what's even better? Making that money grow and earn for you over the course of time.
Investing can be complex for many of us, but it doesn’t have to be. As a teen, all you need to focus on is to learn financial habits that stick with you. Money lessons learned in your teen years can turn out to be very beneficial in the future as you start saving for your financial goals.
Here are a few things that teenagers and their parents can do to get started on the path of building wealth.
One of the things that can leave an imprint on a teenager’s mind when it comes to teaching them how to invest in the amount of money they can earn over the course of time. There are numerous investment calculators available on the web that can calculate the number for you. All you have to do is enter the amount you plan to invest on a monthly basis, the number of years you plan to invest, and the expected rate of return. This is important especially in the early years of your teenage because it is clear that the best way to accumulate a large amount of savings is by taking advantage of the power of compounding.
It can be great for someone who is starting out to buy some stock. You should consider your teen buying shares in a company they are interested in and educate them on how the share prices move up and down along with the reason behind their movements.
As you know – if a company does well, the investor automatically does well. Therefore, it is important for a youngster to understand stock investing in depth.
If a teenager is earning money, you should encourage them to set aside some of this income in order to purchase stocks. Another important learning for them is patience because of the movements in price in the short and long period.
Once a teen is clear on how stocks work, they can move on to investing in mutual funds. A mutual fund spreads your investment across different stocks in order to spread the risk. This is a straight path for teens to build an investment portfolio that is well diversified. They can take advantage and profit from the long term upward trend in the stock market. You can take professional help from an investment advisor to find the mutual funds that suit you and your teen’s investment requirements.
It is essential for a teenager to understand the importance of saving towards retirement, which is a good 40-50 years away for them. however, this helps in conveying the importance of saving for the long term, and the power of investment to build wealth over a long investment tenure. You may be required for your teen to hold a certain amount before you can start with the deposit. It is always good to contact an investment advisor so that you can invest in funds suitable for your teen’s financial goals.
When a teen begins to earn in the form of allowances and first jobs, they are introduced to banks. This is the perfect opportunity for them to further understand the concept of interest rates, how they work and the value of compounding returns.
There is always a risk factor involved when it comes to opening a business. Therefore, it is important to start small. Which is why you do not want the teen in your house to spend their entire allowance or salary on a new venture. Encourage them to open small businesses that do not have a high degree of risk such as a lemonade stall, this will help them learn the basics of running a bigger scale business such as purchasing materials or equipment, tracking the expenses, setting the prices, and logging revenue. There is a lot that can be learned about money via self-employment.
So what are you waiting for? It’s time to get your teen on the ride towards a healthy financial future!