What to consider before investing
There has been a tremendous increase in interest in investing money.
Filipinos are earning more money and all the efforts towards financial education are finally yielding results.
Yet, a lot of people are still clueless about the fundamentals and unfortunately, there are those who even lose money to scams.
People have always asked me about investing—where to put their money, how much to invest, do they buy stocks or mutual funds, etc.
These are all great questions and important issues to address.
First things first
However, before even thinking about putting your money somewhere, there are a few things that you need to take care of first:
1) Money management—proper management of your finances is the foundation of your quest for wealth.
If you are like most of us, your money doesn’t come in just one shot—they come in and go regularly and your investments will do well when you can add to those investments regularly.
You can only keep on adding to your investments if you know how to save properly … and you can only save properly if you know how to spend properly.
Create and stick to your budget, as that will be your most important weapon in building your wealth.
2) Emergency fund—I cannot emphasize enough the importance of building a buffer fund before investing.
Investments are volatile, well at least the good ones are, and there is always a danger that when you liquidate your investment, it may have not earned yet or worse, it ends up smaller than the original amount.
The buffer fund will allow you to keep your investment funds untouched since you have another fund to dip your hands into when emergency strikes. The equivalent of three to six months’ worth of expenses is a good emergency buffer fund.
3) Investment objectives and time frame—what are you investing for? Many people invest without really know why they are investing in the first place.
Knowing your objectives and time frames will allow you to find the best investment instruments to suit your needs.
4) Risk tolerance—it is good to determine your risk appetite before jumping into any investment.
A lot of people invest money in risky instruments and yet they are not prepared to handle investment risks, which cause a lot of frustration that leads to a lot of stress.
Always remember the risk-return relationship: High returns have high risks and vice-versa.
Never invest without knowing the risks.
5) Time—think long term. There are no shortcuts to wealth and you need to be patient in building your wealth over time.
Do not take shortcuts and do not be in a hurry as those actions can cause you to make a lot of financial mistakes.
6) Competence—be prudent. Never invest money in something you don’t understand.
Take time to study what you are investing in, an investment in education will pay off handsomely.
Take time to read about investing and investments or attend a seminar or two, they will come in handy as you start investing.
Be careful; avoid get-rich quick programs, promises of high returns and the like, as they are most probably scams.
Good investment programs do not promise high guaranteed returns.
Good planning and hard work lead to prosperity, but hasty shortcuts lead to poverty.-Proverbs 21:5, NLT
Get both my books: No Nonsense Personal Finance: A Step by Step Guide & Money Manifesto: Lessons in Personal Finance at discounted bundles, visit http://www.randelltiongson.com/get-my-books/ to order.
Merry Christmas to all, always remember that Jesus is the reason for the season.
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