Originally Posted by
Dynamics_2010
It's true that before getting into any long term investments, we have to keep our finances in order first. We need to be honest with our selves and find out the state of our finances.
If possible, come up with a monthly personal cashflow that reflects all your income and expenses. You also need to know your financial net worth as an individual. If the bottom figure says that you're in good shape, then go ahead with your investment schemes. If not, then you might have to address more important issues like:
1. save for liquidity needs - to cover for your day to day expenses. This money should be accessible to you anytime you need it. This can be placed in regular banks. Although, banks have very low interest rates, we havent got much choice,the point is, the cash is accessible anytime anywhere. Ideal savings should be at least 6months of your monthly expenses.
2. save for emergency needs - to cover for periodic expenses i.e. tuition, periodic insurance premiums and of course for emergency situations. I would suggest that this money should be placed in time deposits where there is partial restriction for you to withdraw the money by impulse. Time deposits are relatively low but then again we cant risk putting our emergency funds on stocks and other instruments wherein there is a risk of losing money given the periodic time you will be needing the funds.
3. For your own benefit get a life insurance and a health insurance to protect yourself and your family from further financial turmoil caused by illnesses or accidents that might result to long term disability or death.
4. Manage your debts - if you cant totally avoid have debts, i.e. housing loan, car loan, business loan from banks, then at the very least,eliminate those debts with high interest rates, i.e. credit cards and other lending institutions.
5. Investments
Business ventures - some people have a good hand in business and they want quick returns of their capital investment. So they opt to exercise their own entrepreneurial skills.
Investment portfolio - invest only the money you can afford to lose.
Identify your savings goals- i.e.
what is the purpose of the investment (is it for long term personal savings, or for a future college fund, or a retirement fund?)
how long are you willing to invest the money without touching it? Is it for short term or long term?
how much money do want to you to achieve after a period of time?
Asking yourself these questions will enable you to choose the specific investment vehicle to match a specific goal. This way you will be able to manage your expectations over time.
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