Financial freedom is the goal of most people. Unfortunately, according to the Empower Company’s Wealth and Wellness Index survey for 2022, only 34% of the American population consider themselves financially independent. This number is 14% lower than the data gathered in March 2021.
There’s no exact explanation why most people are no longer confident in their financial circumstances and the societal economic picture. While the retail and labor markets are ticking upwards, the market is still extremely volatile. Also, inflation is at a record high. These scenarios are unsettling for many people.
Apart from that, inflation has been on the news in recent months. This can also cause people to feel that their money won’t meet their needs. They also think that what they currently have is not enough to save for the future. Although it’s uncertain what inflation will look like this year, what’s apparent is that people are looking for ways to be financially free.
What Do You Need to Be Financially Stable?
People only need one thing to be financially secure. They need to have sufficient money to survive any storm life may throw at them, and it begs two crucial questions. First, how much money is enough to be financially free? Next, what should you do to have this money in your account?
The same survey mentioned that an individual needs to earn at least $128,000 per year to be financially free. However, this number is not absolute. It can go up when you factor in other considerations like the existence of savings, family money, and cost of living. If you raise a family, you also need more. According to the Census Bureau, the median income of most U.S. households is only $67,521. This is a long way to go before one reaches the annual earning to be considered financially stable. If your income can’t cover your expenses and allow you to save, you only have one option left — to invest.
Where Should You Invest in 2022?
It’s necessary to invest because it can provide another income source. You can use your investment to fund your retirement or bail you out of a financial jam. Apart from that, investing can also increase your wealth and help you meet your financial goals. This can also improve your purchasing power. No matter your specific purpose, it’s always a clever decision to let money work for you.
Here are three investment ideas you can try this year to help you achieve financial stability:
1. High-Yield Online Savings
This yields interest based on the cash balance in your savings account. They function like your savings account earnings from a traditional bank; you save, and your money grows. These are accessible cash vehicles with lesser overhead costs. As such, you can earn more in higher interest rates offered. You can also access your money by transferring it to your primary bank or bank account. This is an excellent alternative for people who often need immediate access to cash.
This also works best for risk-averse investors and those who need their money instantly. Since you get your investment quickly, there’s less risk of getting scammed.
However, like other investment options, high-yield online savings also come with a risk. While these are Federal Deposit Insurance Corporation (FDIC)-ensured, inflation can still affect them. You might lose your purchasing power if the rates plummet due to inflation.
2. Certificate of Deposit (CD)
Banks issue these certificates with a higher interest rate than a simple savings account. CDs are better investment options when you anticipate the rates to go higher. With this, you can also re-invest your earnings at an even inflated rate when your CDs mature.
Since these are federally insured deposits, they have designated maturity dates. You can opt to withdraw them after several weeks, months, or years. However, if you withdraw them before the agreed maturity date, you might have to pay the penalty.
The financial institution or bank where you deposited your money will pay you interest regularly. You can retrieve the principal and all the accrued interests when your deposit matures. You need to choose wisely to get the best interest rates. This option offers higher and safer payouts, so it’s best for retirees who don’t need immediate returns for their investments. They can lock up their deposits for a more extended period to yield a higher return.
The only risk to consider here is the possibility of interest rates dropping. In this case, you will earn less from your locked-up deposit. Remember that taxes and inflation can significantly affect your investment’s purchasing power.
3. Government Bond Funds
These are exchange-traded funds (ETFs) or mutual funds invested in U.S. government-issued debt securities. These short-term investments are akin to short-term CDs in the sense that they pose less risk when interest rates are high. If you’re seriously considering this kind of investment, 2022 is the best year to start. This year, the finance community expects the interest rate to rise.
This kind of investment is best for people looking for quick and regular cash flow. It’s also ideal for people who are novices at investing. Like high-yield online savings, government bond funds are suitable for risk-averse investors.
The risk is generally low for this kind of investment, considering that government-issued debts instruments are one of the safest investments. The U.S. government’s credit back these bonds. The only risk you need to consider is the inflation rate staying high. In this case, you might lose your purchasing power.
These investment ideas will help you achieve financial security when executed properly. Study the investment landscape, and don’t be afraid to take risks. However, don’t go all out without equipping yourself with valuable information when you test the waters. While information is readily available, you also need to do your part. You need to learn the industry and apply what you gathered diligently. Only then can you truly help yourself be financially free.
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