Have you had sleepless nights worrying about money and the state of the economy? Is money weighing heavily on your mind.
When you start thinking about your personal finances, one of the most important places to start is to figure out how to invest your money wisely. I’m not just talking about what stocks to pick. I’m talking big picture. How is your money flowing in and out of your household.
Many of you may think about this in terms of balancing your budget. That’s one way to look at it, but beyond that I consider it an investing plan. Everything you do is an investment, even simply keeping your budget balanced.
It’s Always an Investment
When you are thinking about your personal finances, keep in mind that everything you do with your money is an investment. Paying your bills is an investment in your lifestyle and credit history. Putting money in a savings account is an investment in your future. Making a purchase is an investment in a product. Putting money in the stock market is an investment in the growth of a company. Even simply balancing your household budget is an investment in maintaining equilibrium.
Once you start thinking of it all as an investment one way or another, you’ve shifted your mindset towards thinking about the future. You are now thinking about how your present actions will affect your future. Once you start thinking this way all of your personal finance decisions will take into account your big picture.
Start with Risk Tolerance
The simplest and best place to is to think about your risk tolerance. You don’t want to be in a position where you are constantly losing sleep over money. This will take a toll on your healthy and your lifestyle.
If you find yourself constantly worrying about money, perhaps your financial investment is simply too close to the edge. Think on what area of your finances is causing you the most stress and consider some ways to scale back in that area. If the stock market is giving you ulcers, consider slowing down on your stock investments. You may not need to pull to entirely, but you can reduce your future stock investments. If your daily expenditures are giving you a headache, think about where you can cut down on your daily spending. Perhaps something as simple as eating out less will put your mind at ease.
Some people are more comfortable with risk than others, so when you consider how you plan on investing your money in the future, think about how you will feel if your investment went south. If it doesn’t bother you, then you know that you have the tolerance for taking the risk. If however, the thought of losing money on that investment scares the living daylights out of you, then step back and take a second look at the investment.
Choosing the Right Investment
Do your research before you put your money in. That seems like very easy advice, but it’s a lot harder in execution than it seems.
Often times, it’s really easy to get caught up in an impulse buy or an impulse investment. Remember: even making a purchase is an investment. Those products at the checkout line preying on the impulse buyer is one example of convincing a customer into making an impulse investment. Is buying that copy of the national inquirer a smart investment of your time and money?
Of course, that’s a simple example, but let’s expand it over to picking the right stock. How often have you heard about someone who got caught up in the latest bubble only to lose their money in some start up company? When you think about many of those investments happen on impulse.
There are so many resources these days, that there’s really no reason not to do the proper research before jumping in. Although it’s sometimes hard to exercise that kind of patience when you hear about a great new startup company and feel the need to put your money in before you miss the boat, you will gain in the long run. Beyond that, it will help a lot in your risk tolerance when you do thorough research before putting in your money.
One of the best ways to practice thorough research is to think on your investments the same way you would think about making a big purchase. If you were buying a new car, what would you do? You would read up about all the different cars that were available. You would consider your personal needs. Are you looking to save gas, or do you want a sporty car that will get you places fast? Perhaps, you need a pickup truck to help you move things from place to place. Then you find a car that fits all of those needs and runs well. After you’ve picked out a couple options, you’ll go out and do some test driving to see which one drives the best for you. Finally, you pick out the single best car and you do price comparisons and bargaining.
If you do all of that, you generally find yourself with a car that you’ll enjoy for a long time. You won’t be on the road worrying if your car will break down on you. Even if you have some minor problems with the car, you’ll generally feel satisfied that you did your research.
If you take the same care in choosing your investments, you’ll likely save yourself many sleepless nights.