The main point of financial planning is to achieve goals and have a better life. Investing, therefore, is central to doing this. Today, there is so much that investors want to achieve with their savings such as purchasing a house, paying for college or retirement security. This means that they have to make smart investment decisions for their goals to be actualised.
The safe investment sequence
If you save but fail to invest, inflation may make it difficult for you to achieve your goals. You need to multiply your capital so as to make your goals achievable.
The following sequence can be followed for success in achieving your goals:
1) Accumulate emergency savings before you invest. An urgent need for money may arise and without such savings, you could be forced to liquidate your investments at a loss due to desperation.
2) Start investing early. The sooner you start, the better. Remember that money has time value so by investing early, you allow your investments more time to grow.
3) Focus on value. Value investing is where many of the most successful investors made their money. Look for companies that are worth more than their market value, invest in them and hold the investment for the long term.
4) All short term high-interest personal debt should be paid off. You cannot be investing while still incurring debt interest much higher than your investment return. Such a scenario can be likened to being on a treadmill that is moving back faster than you can run. You will definitely find yourself moving backwards.
5) Don’t borrow money to invest. If you are a new investor and you want to invest say for example in the stock market, do it with your own money. Adverse market fluctuations may force you to sell your position and you could end up accruing a lot of debt. Therefore, if you choose to invest, do it the safer way – with your savings.
6) Accumulate cash for major purchases like vehicles and furniture rather than drawing money directly from your investment. Only with such financial discipline can you begin investing for your long term goals.
Some people may find speculation very attractive. However, if you have to speculate, do it cautiously with cash you can afford to lose without affecting your major financial goals.
Always keep in mind that the investment landscape is one in which your money can go up in smoke if you’re not careful. Therefore, consider the above sequence before handing in your hard earned savings.