The two most popular tips that are given to people who are trying to be more fiscally responsible are to buy a life insurance policy and to have various streams of income. Though these are great tips that I actually recommend, there are other assurances that can be put into place so one can be fiscally responsible.
If you’ve done a comparison of life insurance policies, including term life vs. accidental death, you may have found that depending on whether or not your life insurance provider includes a stipulation in your life insurance policy, your family may not be able to receive a full pay-out based on how you died.
This reason, among others, is why being fiscally responsible involves more than depending on a single insurance policy to protect your family after your earthly departure.
The most promising way to ensure financial security for yourself and your family (even after you pass) is not only by having multiple streams of income but also having various sources of life insurance.
Alternatively, those “insurances” do not have to be an actual policy with an insurance provider. Investing can actually be used as a form of life insurance.
How to Start Investing
The ultimate goal for investing is to increase your money by buying investments (stocks, bonds, mutual funds, and annuities) and selling them at a higher price. You can purchase stocks, bonds, mutual funds, and annuities through an investment account.
The type of investment account you open depends solely on what your goals are. Some accounts are taxable, and others are not. Some types of accounts may have taxes taken out of the income it earns, while others will not.
Investment books and blogs for beginners can better explain investment accounts, but here is a brief explanation of the general types of investment accounts:
- Employer-Sponsored Retirement Account (401(k), 403(b), or 457 plan) – This is the most common investment account. It allows you to make ongoing payments and invest your savings for potential growth over time. Automatic payroll deductions and tax-deferred savings are usually an option with this type of account.
- Individual Retirement Account (IRA) – This account helps you save for retirement and is not tied to an employer. A traditional IRA offers tax-deferred savings. When you open a Roth IRA, you give using after-tax money.
- Brokerage Account – You can open this account with a stock brokerage or investment firm. People flock to these accounts because you can buy and sell many investment products, which allows for flexibility. However, you will need your broker, or firm, to carry out orders on your behalf despite owning the assets.
- Managed Account – A professional money manager administers these accounts. This allows for a more “hands-off” experience with investing. Your money manager will make decisions about your investment account for you for a fee (usually a percentage of earnings). Their role is to consider your financial needs, goals, risk tolerance, and investable assets to make the best investment decisions.
How to Form a Solid Investment Plan
Depending on which route you took to open an investment account, you may or may not have anyone available to walk you through to arrive at a better understanding of your actual personal finances and how they correlate with your financial goals and needs.
If you do have someone, that is great, but if you do not, you can always better understand how to monitor your personal finances by reading some of the most popular finance books.
Understanding your personal finances is crucial to investing because you need to grasp how much money you have to invest and how much of that money you can risk. There is a vast difference between having extra money and having money that you can risk losing.
If the extra money you have in savings is designated for an emergency, vacation, car, or any other significant family expense, then you do not have money to risk. If you use the 50/30/20 model of financial management, you can see where your money is allocated to.
This model means you will use 50 percent of your funds for necessities, 30 percent for spending money, and 20 percent for savings and investing. Once you have a better idea of what your money is actually like, you can start buying stocks, shares, forex, annuities, etc. without taking from your current savings.
A great place to begin is starting small and finding cheap but good stocks to invest in. If you are unsure how to find affordable and promising stocks to invest in, take a look at Good Stocks Cheap by Kenneth Jeffrey Marshall. This book is “one of the best modern books on investing,” so it is definitely worth the read.
Outside of that, there are three things to keep in mind about investing to start as soon as you can, invest as long as you can, and spread out your investments to diminish the risk of losing money.
Turning Your Investments into Life Insurance
Now that you have a firm comprehension of investing, you can turn your name into a business and leave that business to your surviving family members in your will.
If a small business is incorporated as an S corporation, it can purchase stocks like an individual because there are no legal restrictions. This is similar to an LLC as well. An LLC can buy stocks like an individual because once organized under state law, it can do just as much as a person.
To register as a business (you can use your full name, initials, abbreviation, or a nickname), you will need to reach out to your state to find out what the specific process is. After you register, you should then get federal and state tax IDs. The United States Small Business Administration (SBA) provides step by step instructions on starting a business.
You can follow these steps to create a will:
- Create the initial document. Start by titling the document “Last Will and Testament” and including your full legal name and address.
- Designate an executor
- Appoint a guardian (if needed)
- Name the beneficiaries
- Designate the assets
- Ask witnesses to sign your will (preferably one who is a notary)
- Store your will in a safe place
Once you have created a legal will, you can better rest assured that your family will be taken care of once you pass away. The thought of what happens after you die may seem scary, but using investing as insurance can help take away some of the fear for the future of your loved ones.