How do you make money.

[Greyblades]

Thanks, I have enough info about jobs, what I wanted with this thread is what else there is. I heard alot about stocks, bonds, PACs, interest, saving accounts, but I had little to no idea on what they were and what they do. I'm told to be smart with my money but how can I do that if all I know about economics is what to do for a pay check, I have little to no idea what the market is, what it entails or what is considered smart finances.

[TinCow]

Thanks, I have enough info about jobs, what I wanted with this thread is what else there is. I heard alot about stocks, bonds, PACs, interest, saving accounts, but I had little to no idea on what they were and what they do. I'm told to be smart with my money but how can I do that if all I know about economics is what to do for a pay check, I have little to no idea what the market is, what it entails or what is considered smart finances.

In order to make a living off of investments (stocks, bonds, etc.) you have to have a LOT of money to start out with. For example, a good rate of return on an investment will be in the 5 to 10% range, with 'safe' investments (those with low or no risk of loss) being on the lower end of that scale. Thus, your 'income' would be that 5 to 10%. In order for that to be enough to live off of, the principal must be sufficiently large so that that fraction of it can support your lifestyle. If you have a 5% rate of return (a reasonable expectation these days), a principal of $100,000 would earn you $5,000 per year. If you are withdrawing that money and living off of it, your principal will never increase and thus the amount you earn will not change very much. $5,000 is not enough to live off of in most places, so clearly $100,000 is not enough of a principal to sustain yourself. To gain enough of a yearly return to live off of, say $50,000 per year, (assuming a 5% rate of return) you would need a principal of $1,000,000. None of this is counting taxes on your income either, which will reduce what you get every year.

In short, it takes money to make money. You cannot invest 500 GBP per month and live off of the profits; you need much larger sums. This is why most people only start to live off their investments when they are much older and have accumulated far more in savings. Even then, most people draw down their principal. It requires a truly large sum to live off the interest/dividends alone, a sum that most people are not likely to ever see in their lifetimes.

[Lemur]

Lemur's patented, copyrighted, and trademarked financial system:

Deposit big checks, write small checks.

There. You are welcome.

[Greyblades]

Well yeah I'm not saying I have to live off 500 a month, what I would like is to use what I get to learn, I basically am at a practice stage, living off my parents dime in my parents house with a generous allowance with which to pay for transport to university and the leftovers with which to experiment, I don't need to to live off the profits right now but I would like to use said leftovers productively and learning to use money to earn more money seems pretty productive and even appealing.

Sometimes I wish I had better communication skills so the misunderstandings wouldn't take several posts to explain.

[TinCow]

Well yeah I'm not saying I have to live off 500 a month, what I would like is to use what I get to learn, I basically am at a practice stage, living off my parents dime in my parents house with a generous allowance with which to pay for transport to university and the leftovers with which to experiment, I don't need to to live off the profits right now but I would like to use said leftovers productively and learning to use money to earn more money seems pretty productive and even appealing.

Sometimes I wish I had better communication skills so the misunderstandings wouldn't take several posts to explain.

Well, the first and most important step is to learn how to budget. You need to categorize your income into three separate areas. First, determine how much money you need to pay for essentials, such as food, housing, transportation, etc. Do not include any luxuries in here, only the bare minimum necessary. Second, set yourself a specific level of savings to put away for the future. More on this later, but a good rule of thumb is 10% of your income. So, with an income of 500 GBP per month, this would be 50 GBP. Third, everything else left over is your disposable income. If you do not already have them, open two bank accounts, a checking account and a savings account. Every month, deposit 450 GBP into the checking account and 50 GBP into the savings account. Ignore the savings account for now; pretend it doesn't exist. Pay your bills exclusively from checking. Your disposable income will remain in checking and will slowly accumulate. You can do multiple things with your disposable income. First, you can spend it on luxuries, like entertainment, a good meal, or some nice item or piece of clothing which is not covered by your essentials. Second, you can save it for bigger luxuries. For example, you might want to buy a new computer which costs 1000 GBP. Obviously one month's of disposable income is not enough to pay for this. So, don't spend your disposable income for several months and instead save it up. When you've got enough got the computer, then you buy it. Third, make larger than normal deposits into savings.

Do not run up debt. Credit cards are good things, and I recommend using them. They are easier than carrying around cash, will build a credit record for you (which is important in future years), and you can even save money with them if you've got a card that gives you some kind of cash-back or reward system. The important thing, though, is to NEVER run a balance on the card. Always pay the balance of the card in full every month. If you do this, the credit card costs you nothing (avoid annual fee cards like AMEX, you don't need them). If you cannot afford something based on the amount of money in your checking account, you just don't buy it.

Continue this way until your savings account has enough money in it to allow you to live off of that account with no other source of income for six months. That money is now your emergency fund, and you will never touch it. It exists to bail you out of bad situations, such as unemployment or unexpected medical expenses. It is a safety net for your financial life, and you should always keep it safe in a savings account and never invest it or put it someplace where you cannot access it immediately and in full. From this point on, your monthly savings can instead be diverted into investments. These are the stocks and bonds that you hear so much about. There is a lot to learn about this stuff, but you're still at the beginning of the process so you don't need to worry about it yet. When you get there, find someone who's knowledgeable about it and pick their brains. As your income level increases, your lifestyle will increase as well and you should regularly rebalance the 'essentials' and the savings to ensure that they keep up with your means and your needs. Also make sure that your six-month emergency fund remains a six-month fund. If your lifestyle has changed such that your emergency fund will now only cover four months of living, you need to spend some time topping it up again. You also want to immediately top it up if you ever have to take money out of it.

Above all, do not go into debt for unnecessary things. You will probably need a loan to buy a house or a car, but those are special cases and worthy of their own discussion. Other than that, if you cannot pay for the item in full, do not buy it.

[caravel]

Just blow it all on booze and women...

Or save it all up 'til you get married and your wife will blow it all on shoes and slimming...

[Greyblades]

Ah, but 'tis my curse to be adverse to that sweet liquor you sup,
Booze, that elder sap that some do tap to fill thier wanting cup...

Drat. I try to write drunkenly and I end up getting poetic.
I dont like the taste of alcohol and the brothels in the area are bloody well hidden, why else would I be taking economic advice?

[Papewaio]

What Uni course are you studying? (Helps to understand your mathematical ability)

Use your local library and indeed your Uni library. Just like a physical fitness program use your libraries to build up knowledge in what are stocks, bonds and other investment vehicles.

Use the Internet. I've seen self learning modules produced by stock exchanges ie: http://www.asx.com.au/resources/shares-courses.htm

Once you understand the vehicle then understand the company and what it produces or services. Easiest way is to invest in things that you use on a day to day basis that you like. If you buy it in a supermarket and you don't like it then don't buy it. Essentially buy shares that would make up your personal preferred CPI. This does require you to do the shopping, also you can look at getting up early and going to farmers markets and buying fresh bulk produce. Just make sure you don't waste it.

Read up about great investors and entrepreneurs particle focus on how they got started.

Start with Warren Buffet for instance.

[Gregoshi]

...and the brothels in the area are bloody well hidden, why else would I be taking economic advice?

I gather because you want to be screwed any way you can get it.

[caravel]

I dont like the taste of alcohol and the brothels in the area are bloody well hidden, why else would I be taking economic advice?

Then you have no money problems......?

(and btw I wasn't suggesting brothels)

[Andres]

Well, the first and most important step is to learn how to budget. You need to categorize your income into three separate areas. First, determine how much money you need to pay for essentials, such as food, housing, transportation, etc. Do not include any luxuries in here, only the bare minimum necessary. Second, set yourself a specific level of savings to put away for the future. More on this later, but a good rule of thumb is 10% of your income. So, with an income of 500 GBP per month, this would be 50 GBP. Third, everything else left over is your disposable income. If you do not already have them, open two bank accounts, a checking account and a savings account. Every month, deposit 450 GBP into the checking account and 50 GBP into the savings account. Ignore the savings account for now; pretend it doesn't exist. Pay your bills exclusively from checking. Your disposable income will remain in checking and will slowly accumulate. You can do multiple things with your disposable income. First, you can spend it on luxuries, like entertainment, a good meal, or some nice item or piece of clothing which is not covered by your essentials. Second, you can save it for bigger luxuries. For example, you might want to buy a new computer which costs 1000 GBP. Obviously one month's of disposable income is not enough to pay for this. So, don't spend your disposable income for several months and instead save it up. When you've got enough got the computer, then you buy it. Third, make larger than normal deposits into savings.

Do not run up debt. Credit cards are good things, and I recommend using them. They are easier than carrying around cash, will build a credit record for you (which is important in future years), and you can even save money with them if you've got a card that gives you some kind of cash-back or reward system. The important thing, though, is to NEVER run a balance on the card. Always pay the balance of the card in full every month. If you do this, the credit card costs you nothing (avoid annual fee cards like AMEX, you don't need them). If you cannot afford something based on the amount of money in your checking account, you just don't buy it.

Continue this way until your savings account has enough money in it to allow you to live off of that account with no other source of income for six months. That money is now your emergency fund, and you will never touch it. It exists to bail you out of bad situations, such as unemployment or unexpected medical expenses. It is a safety net for your financial life, and you should always keep it safe in a savings account and never invest it or put it someplace where you cannot access it immediately and in full. From this point on, your monthly savings can instead be diverted into investments. These are the stocks and bonds that you hear so much about. There is a lot to learn about this stuff, but you're still at the beginning of the process so you don't need to worry about it yet. When you get there, find someone who's knowledgeable about it and pick their brains. As your income level increases, your lifestyle will increase as well and you should regularly rebalance the 'essentials' and the savings to ensure that they keep up with your means and your needs. Also make sure that your six-month emergency fund remains a six-month fund. If your lifestyle has changed such that your emergency fund will now only cover four months of living, you need to spend some time topping it up again. You also want to immediately top it up if you ever have to take money out of it.

Above all, do not go into debt for unnecessary things. You will probably need a loan to buy a house or a car, but those are special cases and worthy of their own discussion. Other than that, if you cannot pay for the item in full, do not buy it.

This exactly the advice I wanted to give, but I was too lazy to type it. Excellent post

The six month rule is golden and very important to keep in mind for the rest of your life. Living as if you don't have a savings account is another golden rule.

Next to stocks and bonds, you may also want to look if your country gives fiscal stimuli for certain types of investments. In Belgium, for instance, you get an important fiscal stimulus if you put money into a pension fund/life insurance. There's a stimulus for acquiring a house and from time to time, there are stimuli for certain investments to improve your home. You also always have to look out for taxes; the profits you make on some products are taxed, others are not. Once you're going to get into it, it'll feel like a whole new world opening for you.

I wouldn't put too much trust in professionals though, certainly not when they are busy trying to sell you products or when they themselves are working for a financial organisation. Listen to them, pick up a few things but educate yourself on the subject as well; never decide on the spot, but go back home first, look a few things up and then decide if you're going to follow the advice they gave you.

For instance: some banks will try to talk you into funds organised by themselves. They promise you an expected return of investment of 5 to 6 % which is good nowadays, certainly if you don't have to do anything yourself but transferring money. However, what they sometimes don't tell you, is that there's an annual fee to pay when you step into the fund and you return goes down with a percentage. Then there's also a cost to step into the fund; again 1,5 % gone. Etc. Read everything before you sign into something.

[Vladimir]

Power Ball is up to $550 million: http://www.powerball.com/pb_home.asp

[Vladimir]

I would literally poop myself if I won that kind of money.

I won the PowerBall! Literally! I only got the PowerBall number, none of the rest match.

[ajaxfetish]

Spoiler Alert, click show to read: 

Well, the first and most important step is to learn how to budget. You need to categorize your income into three separate areas. First, determine how much money you need to pay for essentials, such as food, housing, transportation, etc. Do not include any luxuries in here, only the bare minimum necessary. Second, set yourself a specific level of savings to put away for the future. More on this later, but a good rule of thumb is 10% of your income. So, with an income of 500 GBP per month, this would be 50 GBP. Third, everything else left over is your disposable income. If you do not already have them, open two bank accounts, a checking account and a savings account. Every month, deposit 450 GBP into the checking account and 50 GBP into the savings account. Ignore the savings account for now; pretend it doesn't exist. Pay your bills exclusively from checking. Your disposable income will remain in checking and will slowly accumulate. You can do multiple things with your disposable income. First, you can spend it on luxuries, like entertainment, a good meal, or some nice item or piece of clothing which is not covered by your essentials. Second, you can save it for bigger luxuries. For example, you might want to buy a new computer which costs 1000 GBP. Obviously one month's of disposable income is not enough to pay for this. So, don't spend your disposable income for several months and instead save it up. When you've got enough got the computer, then you buy it. Third, make larger than normal deposits into savings.

Do not run up debt. Credit cards are good things, and I recommend using them. They are easier than carrying around cash, will build a credit record for you (which is important in future years), and you can even save money with them if you've got a card that gives you some kind of cash-back or reward system. The important thing, though, is to NEVER run a balance on the card. Always pay the balance of the card in full every month. If you do this, the credit card costs you nothing (avoid annual fee cards like AMEX, you don't need them). If you cannot afford something based on the amount of money in your checking account, you just don't buy it.

Continue this way until your savings account has enough money in it to allow you to live off of that account with no other source of income for six months. That money is now your emergency fund, and you will never touch it. It exists to bail you out of bad situations, such as unemployment or unexpected medical expenses. It is a safety net for your financial life, and you should always keep it safe in a savings account and never invest it or put it someplace where you cannot access it immediately and in full. From this point on, your monthly savings can instead be diverted into investments. These are the stocks and bonds that you hear so much about. There is a lot to learn about this stuff, but you're still at the beginning of the process so you don't need to worry about it yet. When you get there, find someone who's knowledgeable about it and pick their brains. As your income level increases, your lifestyle will increase as well and you should regularly rebalance the 'essentials' and the savings to ensure that they keep up with your means and your needs. Also make sure that your six-month emergency fund remains a six-month fund. If your lifestyle has changed such that your emergency fund will now only cover four months of living, you need to spend some time topping it up again. You also want to immediately top it up if you ever have to take money out of it.

Above all, do not go into debt for unnecessary things. You will probably need a loan to buy a house or a car, but those are special cases and worthy of their own discussion. Other than that, if you cannot pay for the item in full, do not buy it.

I'll just second Andres in saying that this is some of the best starting financial advice I've ever heard expressed. Very well and succinctly said.

Ajax

[TinCow]

I was doing some financial work today and in the process noticed this article: 13 Steps to Investing. It's a very good primer on investments and money management and is worth the read if you're interested in doing something with your money. Note that this is what you do with your extra money AFTER you've taken care of the things I discussed earlier.

[Franconicus]

Well, I am no expert, but had to learn a couple of things:

1) Before even thinking of investing money, pay back all your debts!
2) Do not trust any banker or finance adviser. They all live from your money. You have to care about your money!!
3) Investing money is like playing poker with professionals. You play against people which studied finances and spend their whole days just investigating opportunities.
4) Houses are not as good as everybody seems to thing. However, they force you to save money regularily.
5) If you still want to invest money, a mixture of stocks and gold may be good. A good alternative of stocks (if you do not have the time or interest) may be exchange traded funds. You buy for the Nikkei, Dax or Nasdaq or what ever you like. They have the same performance as the index itself, not better not worse. There is not much management needed, so the fees are lower than for other stock funds. Usually the bank does only the management, and if the bank is bancrupt, you do not loose the money. But there may be different kinds, you have to ask this, if you buy some.
6) Should you buy gold, look where you buy from. You get it much cheaper online than at the bank!

[The Stranger]

invest it in gambling.

[Greyblades]

Well... I've been thinking over the last 2 days, there was this chinese buffet that had recently closed near me, maybe I should get a loan; buy it, open a restraunt. It's a really good area: it's part of the bus station across the road from the rail station, 15 minutes from the mainstreet and there's a mini tesco right next to it. high traffic and easy access to food if we run out some nights, I could see it paying itself off in a year or two.
Worth thinking about, I guess, though it will probably require loads of night classes on management.

[Ibrahim]

Spoiler Alert, click show to read: 

well, I do anything really: jobs, commissions, writing blogs, being a youtube partner (yes, I am one), etc. Not that anything ever pays off is this age.

of course, I never get to enjoy what little money I make, since all of it goes to fill the "crater"--my now closed bank account. closed on account of me bailing out my mom, who cannot plan her flights (or anything really) properly, so makes me pay for her final leg of the journey home--with money I was supposed to save to move to a place where I can find some sort of decent work. brilliant. And to cover her rear, she blames me for it all, because I accidentally opened the courtesy payment option on my old account, even though had I not done so, she wouldn't have returned home in the first place. And she seems to be just fine leaving me to rot with no ability to open a new account (the banks are jerks that way). She cites her financial problems, though really, half her problems would be over if she just payed the darn thing off for me.

And of course, having little experience, I can't get a job as a geologist/mud-logger/anything (even though a BSc would have been enough just a year ago), and with no bank account, I can't even receive money for any other line of work, making matters even worse (since my bank account is closed, and no one wants to hire a person with that issue--I suspect).

so my total income is nowadays about 1,500-3,000 dollars a year. Not exactly enough to go by with. or pay for graduate school (which is a must if I'm to be guaranteed work), or even to begin paying off the 30,000 dollars of debt incurred wasting my time in University for a worthless sheet of paper telling people I can do Geology...

unsurprisingly, I feel like I want to wrap my lips round a glock. Not that I do, as some part of me tells me not to give up: even though every logical part of my brain says I'm screwed.

so, basically, don't live in the US, and if you do, don't waste your time on college, kill off anyone close to you before they start sucking the money off of you, and start your own business if you can. Oh, and don't go into debt. ever. And don't vote for any clown from either party.

So now you know why I haven't been posting much lately at the EB forums, or here.

EDIT@ greyblades: my advice for you, since things are working out better for you, is just be careful with what you spend, don't use gas when you can walk (bicycles are fine, but walking is best for short distances), and see if you can find work as an intern or something (what is your major by the way?). I'd throw out your TV, any but the smallest fridges, and make do with no heating/AC (I hope your place has curtains and not blinds?). Internet should be basic, and your phone plan minimal, and with the cheapest company. don't listen to those get rich quick adverts, especially online, and avoid having to use credit cards.

and work hard in school, that way more scholarships come* (in theory), and you won't have to take out as big a loan. Finally, make sure that you gradually phase out having to get paid from your parents--even if you are still in college. It'll come back to haunt you, if my experience is a clue (I did for one year, then the last two years didn't have parental support, but that one year meant my mom is now on my head to pay her off). Also invest in things that won't lose value (better yet, something whose value will go up)--and it had best be physical, and not stocks. with the currency situation in Europe and the Americas, it's a good idea in the long run.

finally, keep looking for more and better work. I'm sure you'll find something (hey, everyone I know ends up doing well: I'm the only one left. maybe I'm a good luck charm-thingy to people around me?)

*to make that possible while having good work, set yourself at a slow pace: in the US, it's by credit-hour, so over here, I'd recommend 12-15 hours maximum (lowermost full-time: you're more likely to get scholarships). I don't know how it works in the UK, but do the equivalent.

[spankythehippo]

Well... I've been thinking over the last 2 days, there was this chinese buffet that had recently closed near me, maybe I should get a loan; buy it, open a restraunt. It's a really good area: it's part of the bus station across the road from the rail station, 15 minutes from the mainstreet and there's a mini tesco right next to it. high traffic and easy access to food if we run out some nights, I could see it paying itself off in a year or two.
Worth thinking about, I guess, though it will probably require loads of night classes on management.

I wouldn't recommend opening a restaurant. Opening a restaurant is a hit or miss. And a miss has quite large complications.

I will give you advice no one has given here before.

Buy really good Yu-Gi-Oh cards to make a deck, and play in tournaments. I've earned about 6000 AUD from selling cards to Yu-Gi-Oh crackheads.

[The Stranger]

bet on sports. easy money.

and ye restaurant not a smart idea, will take awhile before it will become profitable and if its ur only establishment it is very hard work. generally the food business is not a very smart choice if u want to make a quick but big buck.

poker online is also a good idea if u are good at maths.

[a completely inoffensive name]

Go on a reality tv show.

Spoiler Alert, click show to read: 

Don't worry, it's The Onion guys.

[The Stranger]

Go on a reality tv show.

Spoiler Alert, click show to read: 

Don't worry, it's The Onion guys.

lol XD

[TinCow]

Well... I've been thinking over the last 2 days, there was this chinese buffet that had recently closed near me, maybe I should get a loan; buy it, open a restraunt. It's a really good area: it's part of the bus station across the road from the rail station, 15 minutes from the mainstreet and there's a mini tesco right next to it. high traffic and easy access to food if we run out some nights, I could see it paying itself off in a year or two.
Worth thinking about, I guess, though it will probably require loads of night classes on management.

Restaurants are one of the worst businesses to invest in. 90% fail within their first year.

In any case, you probably couldn't even get a loan to begin with. In order to get a loan, you need to have collateral or an income to offset it, preferably both. Banks aren't going to just give you money because you've got an idea.

[Beskar]

Plus the fact the buffet recently closed shows you how successful the area actually is and they probably invested far more time and money than you probably would be able to do so yourself, perhaps even with far greater experience.

You could always do the 'tasks' from the Apprentice. They usually get assigned like £200 and they compete to earn as much as they can from it or run your own start-up business. Many universities do have schemes where they could help you set up a business and one at my old university which was successful was home-made soup which was sold during the University rush times.

[luigi_I]

ptc :)