Because investing is not a sure thing in most cases, it is much like a game – you don’t know the outcome until the game has been played and a winner has been declared. Anytime you play almost any type of game, you have a strategy. Investing isn’t any different – you need an investment strategy.
An investment strategy is a plan for investing your money in various types of investments that will help you meet your financial goals in a specific amount of time. Each type of investment contains individual investments that you must choose from. A clothing store sells clothes – but those clothes consist of shirts, pants, dresses, skirts, undergarments, etc. The stock market is a type of investment, but it contains different types of stocks, which all contain different companies that you can invest in.
If you haven’t done your research, it can quickly become very confusing – simply because there are so many different types of investments and individual investments to choose from. This is where your strategy, combined with your risk tolerance and investment style all come into play.
If you are new to investments, work closely with a financial planner before making any investments. They will help you develop an investment strategy that will not only fall within the bounds of your risk tolerance and your investment style but will also help you achieve your financial goals.
Why should I Make a Budget?
You say you know where your money goes and you don’t need it all written down to keep up with it? I issue you this challenge. Keep track of every penny you spend for one month and I do mean every penny. You will be shocked at what the itty-bitty expenses add up to. Take the total you spent on just one unnecessary item for the month, multiply it by 12 for months in a year and multiply the result by 5 to represent 5 years.
That is how much you could have saved AND drawn interest on in just five years. That, my friend, is the very reason all of us need a budget. If we can get control of the small expenses that don’t matter to the overall scheme of our lives, we can enjoy financial success. The little things do count. Cutting what you spend on lunch from five dollars a day to three dollars a day on every workday in a five-day workweek saves $10 a week… $40 a month… $480 a year… $2400 in five years…. plus, interest. See what I mean… it really IS the little things and you still eat lunch every day AND that was only one place to save money in your daily living without doing without one thing you really need. There are a lot of places to cut expenses if you look for them.
Set some specific long-term and short-term goals. There are no wrong answers here. If it’s important to you, then it’s an important period. If you want to be able to make a down payment on a house, start a college fund for your kids, buy a sports car, take a vacation to Aruba… anything… then that is your goal and your reason to get a handle on your financial situation now.
If you are an impulse spender, it will prevent you from saving for important things like a house, a new car, a vacation, or retirement. You must set some financial goals and resist spending money on items that don’t matter in the long run. Impulse spending will not only put a strain on your finances but your relationships, as well. To overcome the problem, the first thing to do is learn to separate your needs from your wants. Advertisers blitz us hawking their products at us 24/7.
The trick is to give yourself a cooling-off period before you buy anything that you have not planned for. When you go shopping, make a list and take only enough cash to pay for what you have planned to buy. Leave your credit cards at home. If you see something you think you need, give yourself two weeks to decide if it is something you need or something you can easily do without. By following this simple solution, you will mend your financial fences and your relationships.
Have you ever noticed that the things you buy every week at the grocery and hardware stores go up a few cents between shopping trips? Not by much…just by a little each week but they continue to creep up and up.
All it takes for the price to jump up by a lot is a little hiccup in the worldwide market, note the price of gasoline as it relates to world affairs.
There is a way that we can keep these price increases from impacting our finances so much and that is by buying in quantity and finding the best possible prices for the things we use and will continue to use every day… things that will keep just as well on the shelves in our homes as it does on the shelves at the grocery store or hardware store. For instance, dog food and cat food costs about 10% less when bought by the case than it does when bought at the single can price and if you wait for close-out prices you save a lot more than that.
When it comes to investing, many first-time investors want to jump right in with both feet. Unfortunately, very few of those investors are successful. Investing in anything requires some degree of skill. It is important to remember that few investments are a sure thing – there is the risk of losing your money!
Before you jump right in, it is better to not only find out more about investing and how it all works but also to determine what your goals are. What do you hope to achieve with your investments? Will you be funding a college education? Buying a home? Retiring? Before you invest a single penny, really think about what you hope to achieve with that investment. Knowing what your goal is will help you make smarter investment decisions along the way!
Too often, people invest money with dreams of becoming rich overnight. This is possible – but it is also rare. It is usually a very bad idea to start investing with hopes of becoming rich overnight. It is safer to invest your money in such a way that it will grow slowly over time, and be used for retirement or a child’s education. However, if your investment goal is to get rich quickly, you should learn as much about high-yield, short-term investing as you possibly can before you invest. Again, remember that investing requires more than calling a broker and telling them that you want to buy stocks or bonds. It takes a certain amount of research and knowledge about the market if you hope to invest successfully.
Along the way, you may make a few investing mistakes, however, there are big mistakes that you absolutely must avoid if you are to be a successful investor. For instance, the biggest investing mistake that you could ever make is to not invest at all or to put off investing until later. Make your money work for you – even if all you can spare is $20 a week to invest!
While not investing at all or putting off investing until later are big mistakes, investing before you are in the financial position to do so is another big mistake. Get your current financial situation in order first, and then start investing. Get your credit cleaned up, pay off high-interest loans and credit cards, and put at least three months of living expenses in savings. Once this is done, you are ready to start letting your money work for you.
Don’t put all of your eggs into one basket. Scatter it around various types of investments for the best returns. Also, don’t move your money around too much. Let it ride. Pick your investments carefully, invest your money, and allow it to grow – don’t panic if the stock drops a few dollars. If the stock is stable, it will go back up.
People want to insure their futures, and they know that if they are depending on Social Security benefits and in some cases retirement plans, they may be in for a rude awakening when they no longer have the ability to earn a steady income. Investing is the answer to the unknowns of the future.
You may have been saving money in a low-interest savings account over the years. Now, you want to see that money grow at a faster pace. Perhaps you’ve inherited money or realized some other type of windfall, and you need a way to make that money grow. Again, investing is the answer. If you want or need to make a lot of money fast, you would be more interested in higher-risk investing, which will give you a larger return in a shorter amount of time. If you are saving for something in the far-off future, such as retirement, you would want to make safer investments that grow over a longer period.
The overall purpose of investing is to create wealth and security, over a while. It is important to remember that you will not always be able to earn an income… you will eventually want to retire. You also cannot count on the social security system to do what you expect it to do. As we have seen with Enron, you also cannot necessarily depend on your company’s retirement plan either. So, again, investing is the key to ensuring your financial future, but you must make smart investments!
Never invest money without having a goal and a strategy for reaching that goal! This is essential. Nobody hands their money over to anyone without knowing what that money is being used for and when they will get it back! If you don’t have a goal, a plan, or a strategy, that is essentially what you are doing! Always start with a goal and a strategy for reaching that goal!