Generating Income in Trying Times 2017-03-20

Debt is a killer. That’s a pretty bold statement to make given that most people are in debt at some level. Whether it’s credit card debt, indebtedness on your auto loan, mortgage or college tuition – debt is pervasive. If debt is a given, the issue then becomes how best to manage your debt. The experts will always advise you to clear your debt before you’re able to build an effective investment portfolio. There is a logical approach, but it’s not a realistic way of living your life. Home loans, automobile loans and student loans can take many years to pay off, and in the interim, investments cannot take a backseat.

The question then becomes: How do you effectively juggle debt repayments and investments at the same time? If you are equally indebted as you are invested, is your net worth zero? This is an important question, and one that requires further analysis. For starters, it’s never too early to start investing. The more you invest over time, the bigger your investment nest egg becomes. Debt is an intractable component of our lives. It is most pervasive with the credit cards we use to make daily purchases, pay water and lights, pay our Internet services, pay auto loans, etc. The first step towards effectively controlling debt is creating a budget. If you’re spending more than you are taking in, you are in a net deficit every month. If you’re spending less than you are taking in every month, you are in a net surplus. The concepts of surplus and deficit are extremely important when generating income in trying times.

What is the best way to manage income and debt with a limited budget?

This is a question that continues to boggle the minds of money managers and every day individuals. If resources are limited – which they invariably are – how should you allocate funds to maximize debt repayment with enough disposable income for meaningful investment? The only way to do this is by painstakingly going through your daily, weekly, and monthly expenditures, line by line. If you’re earning $4,000 per month and your net take-home pay is $3100 per month, deduct the essentials such as healthcare, mortgage/rent, water and lights, car repayments, car maintenance, food, education, and the like. The figure you are left with is invariably much smaller than you thought. Now, you have to factor in things like debt repayment in order to maintain a healthy credit score. Never fall behind on your credit card repayments, because there are long-term repercussions of such negligence. If you find that your disposable income is $300 to $600 per month, ensure that half of that goes towards investment and half of it goes towards debt repayment. The quicker you pay down your debt, the bigger your net worth.

Should you invest in a conventional portfolio, or try something different?

Everyone’s got different advice for you when it comes to making investments. Some folks will tell you to stick with a traditional 401(k) plan and let the funds do your work for you. ETFs, mutual funds and other baskets of investments have been performing moderately well in recent years. However, with the stock market at record high levels, one must wonder when the tide will turn. Now, the Dow Jones Industrial Average is holding steady above 20,000. This is unprecedented for the US, and it behooves you to consider a worst-case scenario: a correction or a reversal. What will happen to your basket of investments in your 401(k) if the market reverses? Things like this are real possibilities, given that markets are cyclical in nature and everything that comes up must come down. For this reason, I recommend considering things like contrarian investments with regulated binary trading companies. These present traders with a terrific way to profit off rising and falling markets. Sure, you can invest in highly leveraged futures trading, but that is risky in itself. It is far safer and more sensible to profit off market movements, especially when you have all the indicators available to you. For example, we know that USD currency pairs will rally when the Fed introduces rate hikes. We also know that if there is a risk-off approach adopted to equities markets, gold will rally. Further, if OPEC agrees to further cuts in production, the oil price will rise. These are all known variables, and the converse also holds true. For that reason, put or call options in a binary trading format certainly warrant careful consideration as part of your investment portfolio.