Finance is the lifeline of any business. However, finances, like most other resources, are always limited. On the other hand, wants are always unlimited. Therefore, it is important for a business to manage its finances efficiently. As an introduction to financial management, in this article, we will look at the nature, scope, and significance of financial management, along with financial decisions and planning.
Introduction to Financial Management
Let’s define financial management as the first part of the introduction to financial management. For any business, it is important that the finance it procures is invested in a manner that the returns from the investment are higher than the cost of finance. In a nutshell, financial management –
How to Invest Money
When figuring out how to invest money, it’s best to start with the basics. I’m sure any financial adviser will agree with that.
These basics include setting the goal of your investments and determining where to invest money to best achieve each goal.
Investing Money for Beginners
When you invest money, what you are doing is either buying a portion of a company or a commodity with the belief that the value of that company or commodity will grow over time.
Investing is not a get-rich-quick scheme, but rather a way to consistently grow the wealth you already have. The good news is that even though investing is a way to grow your wealth, you don’t have to have a lot of money to get started.
Compounding interest dictates that even small sums of money can be turned into fortunes over time, providing you select the right investments.
1. The Stock Market
The most common and arguably most beneficial place for an investor to put their money is into the stock market.
When you buy a stock, you will then own a small portion of the company you bought into.
When the company profits, they may pay you a portion of those profits in dividends based on how many shares of stock you own.
When the value of the company grows over time, so do the price of the shares you own, meaning that you can sell them at a later date for a profit.
2. Investment Bonds
When you purchase a bond, you are essentially loaning money to either a company or the government (for US investors, this is typically the US government, though you can buy foreign bonds as well).
The government or company selling you the bond will then pay you
interest on the “loan” over the duration of the bond’s life-cycle.
Bonds are typically considered ‘less risky’ than stocks, however, their
potential for returns is much lower as well.
3. Mutual Funds
Rather than buying a single stock, mutual funds enable you to buy a basket of stocks in one purchase. The stocks in a mutual fund are typically chosen and managed by a mutual fund manager.
But here’s the kicker:
These mutual fund managers charge a percentage based fee when you invest in their mutual fund.
Most of the time, this fee makes it difficult for investors to beat the market when they invest in mutual funds. Also, most mutual fund investors don’t actually ever beat the stock market.