The Handy Investing Answer Book. Paul A Tucci
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What are some steps to establishing the right goals for investing?
At the onset, you should be able to articulate the reason why you are investing in the first place. The reason for this is that by illuminating each reason, you can see why you are investing, and each activity’s time horizon. Perhaps your goal is retirement savings, so that you accumulate enough capital to fund your living expenses during your retirement years. Depending on your age at the time you invest, this goal could be long term. Perhaps you wish to invest your money to fund educational expenses that you may need in a few years. This reason to invest may have a short- or medium-term time horizon, and would require different strategies and risks. It is good to have a clear expectation in terms of what returns you would like to see, perhaps on an annual basis. You must decide what percent return you wish to obtain, and what you are willing to lose during this term. As in all complex projects, it is good to divide your goals into attainable subgoals. You should begin investing in choices that you understand, and that match your competency. You also need to have a clear understanding as to how much time you should spend managing your investing activity, as some investment choices may require you to spend more time researching, reading, and deciding than others.
What is another important step in setting my financial goals?
You should understand that to be successful at investing, you must have a clear picture of where you are today, a snapshot of your financial picture. This analysis is not difficult to perform, but it does require some time. If you know where you are today, then you have a value with which to compare your investing strategies and to measure how they contribute or detract from your goals and objectives.
Why should I invest regularly?
Investing regularly teaches you the discipline and commitment necessary to achieve your financial goals. It also directs money that may have been used for unnecessary expenses into investments that help you achieve your long-term financial goals.
How do I create a goal?
You may create a goal around nearly anything that you can imagine. It is very important that you focus on attainable goals that are easily manageable.
Must I have personal financial software in order to be successful at managing my financial goals?
No. Your money can easily be managed on anything from the back of a napkin to an Excel spreadsheet. What you must focus on is to adopting behaviors that will allow you to begin to accumulate wealth, keep your spending in check, and be sensitive to your financial goals. Software merely helps you keep track of most of your sources of spending and saving in one place, and imports data automatically from your banks and investment accounts, saving you time that would be spent doing everything on paper.
What do I do if my investing goals conflict?
Sometimes investing goals conflict. You may want to save to purchase a house, and simultaneously save to help fund your children’s education. You will always have choices, and it is a personal decision to fund one choice over another. But one thing is certain: If you cut expenses and increase your income, you will be better able to fund more goals than if you do not.
Why should my goals be easily manageable?
As you make these life changes, you will want to see results and reward yourself many times, in order to reinforce the changes in behavior and attitudes that financial success requires.
What are some examples of financial goals?
Some financial goals might be: reduce debt by 20%; save 10% of what I earn; save $20,000 to pay for a house down payment, reduce my credit card debt to $1,000.00, save $10,000 per year for my children’s education; and reduce my heating expenses by 25%.
What are some basic steps that I can design in order to attain my personal financial goals?
There are several steps we all should take in order to be successful at creating and reaching our financial goals. We should begin by thinking of and assessing our attitudes toward money, and focus on what thoughts or attitudes seem to be blocking our ability to attain our financial goals. Many of these concepts started at an early age, by observing how our parents and other significant players in our lives dealt with financial issues. All the beliefs and attitudes about money that are blocking us can easily be changed. We should begin to read and learn about personal finance by using information that is available to us, such as by searching the Internet, reading magazines on personal finance, paying attention to the business and financial section of the newspaper, and watching personal financial shows on TV and online.
It may seem a bit intimidating at first, but after a while, the information begins to make sense. You begin to see how small economic changes affect variables such as today’s stock price, but not next year’s stock price. You begin to see which economic variables affect each other, why the price of oil is so critical to the economy, or the effect of the interest rate in a capital such as Tokyo or London. You should assess your financial picture and have a truthful and open view of where you are in terms of your income and expenses. You should seize every opportunity to improve your income. You should look at your expenses and discover the overages. You should see if you have at least six months of emergency funds set aside—in case of a job change or other life event—so that you can easily ride through it. And you must consider paying yourself a certain percentage of your income each pay period first, never touching these funds unless they are to support some financial goal, such as education, retirement, etc. You should design attainable short- and long-term goals. This allows you to build confidence that you can attain a goal before moving on to the next. It allows you to visualize a long-term goal, and not let your current desire to buy some new thing get in the way of attaining that goal.
Once you have your goals in mind, it is time to execute your strategies to attain your goals. By this point, you have some ideas or strategies in place that help you reach your short-term and long-term goals. You may decide to begin taking money from your paycheck and direct it to a retirement fund. You may decide to sell the leased car, buy a cheaper used car, and begin saving the monthly payment. Suddenly, after 12 months, you find you have an additional $2,400 available to invest. Your personal finance journey also involves learning how to analyze your performance, and how well you meet your short- and long-term goals. Should you sell the investments that are doing poorly in the short term? Do you have too much money tied up in real estate? Should you now move from keeping cash to investing in mutual funds?
It is important to look at the performance of our portfolio in order to make sure it is helping you meet your goals, or make the necessary changes. Finally, personal finance teaches you to have the flexibility to occasionally readjust your goals and strategies, and to make adjustments in both your spending habits and savings habits, depending on what events life throws at you. You learn how to make the right choices at the right times, and see opportunity to improve your methods and strategies as you reach different stages in your life.
How does having and maintaining an expense budget help attain my financial goals?
Having and maintaining an expense budget provides you with a map of your current and future expenses, and is a great guide that describes in detail where you are headed financially. An expense budget allows you to make changes in each item or category within your budget, in order for you to redirect that money to attain a goal.
Make your plans as far in advance as possible, and take small, incremental steps to reach larger, long-range financial goals.
How do I begin to set my investment goals?