Wednesday, May 7, 2014

Money on the Net: A Revisit

"Wealth is a persons ability to survive so many number of days forward - or, if I stopped working today, how long could I survive?"
- R. Buckminster Fuller

One night I was glued to the computer with a few drinks and cigarettes, a calculator, and 10 or more internet tabs open with everything from online gigs for pocket change, investopedia and marketwatch for investment knowledge, my bank account for moving cash, and my girlfriend screaming for me to go to bed... No matter how much sleep I may lose on those binges, preparing for the day I leave my job(whether fired, laid off, quitting, retirement, or death) is what makes each start of the work week, and work day more bearable....

 This independent study has turned into a weekly, if not almost daily habit. This month I decided to give up smoking and drinking to see how much money I could save and invest in other areas. I was recently studying the book Rich Dad Poor Dad by Robert T. Kiyosaki and although I have already been implementing a few of the asset-building activities the author mentions, I welcomed the new perspective on financial literacy concepts. One of the most important is the distinction between an asset and a liability.

Asset = money made whether I work or not
Liability = money spent whether I work or not

So with this new knowledge, we will add on a previous post discussing the opportunities for making money online. Except for number 1, the methods in this list will deal with the idea of generating "passive income" through assets.

1. MTurk is a website powered by Amazon where workers can search for Human Intelligence Tasks("hits") which are posted by other users. The tasks can be as easy as copying text from a business card and taking surveys, to more advanced hits such as transcribing video and audio recordings. The payment for hits can range depending on how complex or time consuming the HIT is. The hard part is reviewing the gigs that make the most sense to perform, and match your working style and interests. You won't get rich, or even replace your current paycheck, but you can make some extra pocket change.

2. Stocks
When you buy stocks, you own a piece of that company. To raise money, companies will often sell partial ownership of the company as a stock in exchange for money. The company uses this money to grow its current business, or fund new ideas and opportunities.

When dealing with the stock market there are a number of ways to make money. The 2 main methods are sales profits and dividends. How you invest depends on your style and financial goals.

Dividends = Money the company pays you for owning the stock.

Dividends are for long term income and saving money for retirement, children's college funds, and other long term events. Dividends are paid out over time - usually every quarter(3 months). Regardless of what the stock's price is, as long as the company is in business, you get paid.

Gains = Money you make after selling the stock for a profit.

  Trading stocks for gains you get the money as soon as the deal is made. You can either reinvest the money on a different stock, or you can keep the cash. There is also more risk here because the value of the stock can cause you to lose money just as easy as it can make money.

3. CD's and Bonds
Certificates of Deposit(CD's) and Bonds are both like a friend giving you an "IOU", but you invest in them for different reason. A CD is bought through your bank, it's another way of saving your money. The bank holds your CD for anywhere from 3 mo to 5 years, depending on how long you agreed they could hold it. When the time is up, the bank pays you interest on the money you let them borrow. This is giving the bank a short term loan.
 Bonds are similar to CDs and work pretty much the same way. The difference is bonds can be bought through a company or a bank. It is a long term loan, usually for 10 years or more. But bonds also normally have a higher interest rate, so more money is made when the bank or company pays you back. 

4. Mutual Funds
Mutual Funds combine stocks, bonds, and CDs with other form of investment into one package. The money for these investments comes from groups of investors pooling their money together. Mutual funds are managed by a broker, who handles what to invest the money in, how long, and when. As an investor you buy a share(or part) of the mutual fund. Whenever the fund makes money, through dividends, gains, or interest, that money is paid out to the owners of the fund in dividends. As the value of the funds investments grow, the price of shares for that fund grows too. You can also sell your shares in that fund for cash.

If you don't feel comfortable researching individual companies, or watching the market for the best deals on stocks, bonds, and CDs, a mutual fund is a convenient investment opportunity. But they are also riskier. Just because you have a broker handling the funds for you, doesn't mean they can't make mistakes.

For those who have experience in the investment field, it works like a game to them - no different than going to the casino. The same way you can hit it big and make a lot of money, you can lose it just as fast. It doesn't take a lot of money to get started, all you need is a bank account. I had only $50 in my account when I bought my first stock. By doing your research and taking educated risks, you can make investments work for you, and make money, while managing it all from your computer.