Investment is a term often thrown around with various meanings. You could be investing in a blue chip stock, a home remodeling project, or even in a personal finance blog! In corporate finance, investment could mean machinery at a plant, a new employee, or a new office building. Regardless of what you are investing in, the most important aspect is your expected return. For simplicity let’s call it your return on investment. Opportunity loss is another term to make yourself familiar with. By putting your money into an investment vehicle you are forgoing other things that you could have used that money on. The opportunity loss can be that vacation you could have went on, or the new car you could have purchased, or even that much needed night out with friends. Those are all fun things that you could’ve spent money on, but instead you may have chosen the more responsible path. That’s why it’s so important that you get an appropriate return!
Some people prefer investing their money in stocks, some in mutual funds, and other in ETF’s. People will always swear that one has benefits over the other, and in some cases that may be true, but the main concept tends to be lost on most people. You stash funds aways in any of those investments in order to receive an ROI that outpaces inflation, and that’s really the most important part. Put your money to work for you so that your return can compound over the life of the investment. Personally, I am very risky adverse. While I’m not a fan of sticking all my money in a low interest bearing savings account, I’m also not going to put it all in real estate investment trusts. A relatively safe dividend paying stock or mutual fund allows my money to grow at rate of return that I can reasonably expect.
Home Improvement Projects
A new home is an investment in and of itself. But after time we tend to find little, or big, improvements that we want to make. So much so, that we are willing to spend hundreds and possibly thousands on a single project. Unfortunately, what many don’t understand is the time one must spend in a home in order to realize a positive return on their investment. In today’s housing market many of us are still underwater and trying to swim to the top. Sinking $10,000 in a bathroom remodel can be nice if you have the money, but don’t undertake a project like that if you plan on selling within a few years. Likewise, spending money on a finished basement can be fun to use and show off when it’s all done, but historically the ROI isn’t dollar for dollar. If you plan on living there forever, or even 20+ years, go for it! Otherwise, you may want to rethink how you spend your hard earned money. Sometimes it’s better to go without and to simply put the money in an interest bearing account for your next home.
Most of you readers may know that is my preferred type of investment. Low amount of invested capital and high rate of return is exactly what most people are looking for. Though it’s important that you understand how your revenue is generated. Spending $1,000, $10,000, or even $100,000 on a blog or website may be sound investment, but it all depends on how the site generates cash. Do you sell your own product, or do you sell advertising? Is your advertising passive, or must you seek out your own leads? I’ve done fairly well with advertising on Money Is The Root, as well a on my other blogs. However, CPC and CPM ads aren’t brining in all of that money. I’ve worked to build traffic, loyal readership, and I’ve often sought out advertisers on my own. If you purchase an established site, make sure you have the necessary tools, skills, drive, and contacts in order to continue generating the return on your investment.
Time may be the most precious commodity in the world, and yet it always goes undervalued. It honestly upsets me to see people take this for granted. We won’t live forever, and our time is up when it’s up, which is not information any of us are privy to. In fact, time is so important we have an equation that measures the time value of money! So why shouldn’t we also have a monetary value of time? By all means, donate your money and time to charitable causes, I would never tell you otherwise. But don’t labor for free, know your value, and go out and get it. Get rich quick schemes aren’t worth your time, and may increase the amount of time you need to devote to getting rich slowly. Spending a dozen hours on the couch each week might be better spent towards achieving higher education, or a second job, or time with family. Unfortunately, time wasted doesn’t translate into a capital loss write off.
Has there been a time in your life that you neglected to consider the return on your investment? Did you regret it? Do you still regret it? I can certainly think of a few in my own life.