Before creating your investment plan, there are some things you simply need to know. Many people express a desire to invest and often seek investments which they believe could bring about the largest returns. But prior to investing, you have to first identify your purpose for investing, understand how much risk you are willing to take, and then and only then, you would be able to identify the right investments for you.
Get Your Financial House in Order
Before getting into investing, it makes sense to care of some housekeeping first. Get your personal financial house in order! In particular, you should first address your savings and debt. This is key because you do not want to invest money needed for emergencies.
Next, if you are paying high interest debt, it is a good idea to establish a debt reduction plan to pay off your creditors. This would in turn provide you with an instant return. For example, if your credit card company is charging you $50 per month in finance charges, you would instantly get a return by eliminating the debt. Lastly, take advantage of your employer’s sponsored retirement plans. For instance, your company provides a matching option, you are essentially leaving free money on the table, if you do not take advantage of the plan.
What are your financial goals?
After you have cleaned shop, now it is time to invest. Before making a decision on what you should invest in, you must first identify your financial goals.
- What is your short and long-term financial goals?
- How long do you have to accomplish these goals?
- What steps can you take to meet your financial goals?
This is important because it helps you to identify the purpose for investing. Are you investing for your retirement? Seeking to fund your child’s education? Or planning for a marriage? Determining your reason would help you be able to identify your time horizon, which is simply understanding when the money is needed. Then you are able to select the appropriate investment for your investment plan.
In addition, identifying your financial goals allows you to determine what investment works best for you. For example, if you are expecting to invest for your retirement, it may make sense to have riskier investments, such as equities (stocks). However, if you need the money sooner, it may not be a good idea to put your money in the market. Seeking safer investments could help you achieve your short-term financial dreams.
Stay tune next week and subscribe to our blog for Investment Series/part 2!
Remember: your choice, your future!