1. Buy stocks and let time work for you
In the long term, investing in shares has clearly outperformed forms of investment such as bonds or savings accounts. In the last 50 years (from the end of 1964 to the end of 2014), the average annual performance of the DAX or its predecessor, the stock index of the Börsen-Zeitung, was 7.3 percent. If you invest EUR 10,000 in shares today, you could look forward to a portfolio value of EUR 10,730 in a year, based on the historical return. At the end of the second year, it would already be 11,513 euros. After 40 years, the value would be 167,490 euros. Regular additional purchases after the initial investment can further increase the portfolio value. However, your own money should not only be invested in shares, but diversified across several forms of investment in order to minimize the risk of loss.
2. Take out the most important insurance policies
Many Germans pay too much for their insurance coverage or take out insurance that they don’t really need. On the other hand, important protection is often missing. However, certain types of insurance are of great importance when it comes to protecting yourself from financial loss or even financial ruin. The private liability insurance is particularly noteworthy. According to the law, anyone who causes damage to a third party is obliged to pay compensation. This applies to personal injury, property damage and financial loss in the private sector. In the worst-case scenario, an accident involving personal injury can result in high payment claims. Private liability insurance protects against the risk of lifelong payments. In addition to private liability insurance, household contents and disability insurance can be considered important.
3. Invest in financial education
At school, financial education plays only a very minor role, if at all. Many parents are also reluctant to give financial tips or have no knowledge of wealth accumulation that they could pass on to their children. At a young age, one should therefore start to educate oneself financially on one’s own responsibility, for example by reading financial books or corresponding blogs on the Internet.
4. Save and set goals
Many experts advise saving at least ten percent of your monthly income or investing this proportion regularly. If you start saving early, you can look forward to large purchases that will be made at a later date with equanimity. Examples include buying a house or car. You should make your financial goals clear in writing, develop a savings plan in this context and regularly check your own expenses. Financial goals can be formulated according to the so-called SMART rule. This means that the goals should be specific, measurable, ambitious, realistic and time-bound.
5. Generate passive income
Anyone striving for financial independence should start thinking about generating passive income at an early stage. Passive income is income resulting from past performance. A usually high initial investment, for example in the form of time and effort, creates a sustainable source of income. An example is writing a book. While it takes a lot of time to write the book, selling the book can provide a steady flow of cash over several years.
Editorial office finanzen.net
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