Beachside Resident #2 Eliminating debt and stock defined

Last month, we established a starting point which included insurance and emergency funds before investing. Excessive debt should also be eliminated.

Monthly payments feel like you’re running in sand. Nearly impossible to get ahead of them, no? Assuming you can stay current on all payments, consider this easy way out. Arrange your debts by size. Focus on the debt with the smallest balance, pay more than the minimum due and pay it off first. Next, use the money used to pay on that loan and apply it to the next smallest balance and work your way up. If possible, stop buying on credit. Consider how much more you could buy if you didn’t have to pay the interest charges. That’s enough math for one day.

When you pay anything above your normal payments on a loan, clarify if you’re making extra payments or paying down the balance. The lender will lean towards counting it as extra payments. Your loan should pay off faster if you apply it to the balance.

So, what are stocks and where do they come from? Imagine the following scenario:     Joe and Mary make the best widgets in the world. Demand is strong but they can only make them so fast. They need to expand production but have already exhausted their life savings to get this far. They are willing to sell a portion of their company to raise funds so they can grow. Fast forward past all the regulatory crap (you’re welcome) and investment banks will bring their company public with an IPO or Initial Public Offering
Normally, investment bankers reserve the shares for their biggest customers. When those customers sell them, they are sold on a secondary market like the NYSE or Nasdaq. That’s where we can buy them.

The New York Stock Exchange was founded in 1792. Regional exchanges opened later and in 1971 Nasdaq opened. What does this mean? When we buy or sell securities, we place an order through our broker and they present that order to the market. It’s an efficient ongoing auction driven by supply and demand.

Next up, stock.

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