We, as humans, can abide by a set of logic and follow the rules. We try to put rules in every situation we can imagine. We try to stay physically healthy by working out consistently. We try to make a regime of an active day to follow our hobbies and make time for activities. Making rules help us to stay ahead in our game while keeping us consistent. Yet, we do not give equal importance to our financial health.
Thus, it is equally necessary that we follow some rules to stay financially fit. Financial fitness means we always have a plan to get out of any distressing situation without getting ourselves into debt. It’s a way of maintaining financial freedom by growing even in the face of adversities. This also helps us keep a tab on our earnings, expenses, savings, and investments. We will manage our finances a little more reliable when we have set rules for all our decisions.
Here we try to define a few rules of money that can help you challenge yourself into falling consistent. We believe it will make your financial planning efficient and make you financially smart and prudent.
1. Gaining a deeper understanding of your own investing style
There are a plethora of investment options available for an investor to dive in. With those options come the different types of investors too. Some are the people who go for short-term investments, while some play for the long haul. There are spectators, intra-day traders, short-term and long-term investors, and the list continues. The aim behind every investment isn’t the same. Everyone has different expectations of rates of return, the ability to take different levels of risk, and a very subjective approach to investments.
Let us call an example of a company X. Now the growth seen in the shares of that company in the past 10 years was over 200%. If you are a long-term investor, then all that matters to you are the long-term returns you will get with the growth of the company’s shares. But if you are an everyday trader, you will be concerned if the company’s shares fall by even 0.5% on that day. You won’t get bothered by how the company will perform in the long run if your concern is everyday performance.
Hence, one must understand his/her investing style and grow by sticking to that process.
2. Expanding the horizons of time for investment
Albert Einstein quoted, “Compound interest is the eighth wonder of the world. He, who understands it, earns it. He, who doesn’t understand it, pays it.”
The sooner one starts investing, the greater profits one can see from compounding. The power of compounding lies in time. Warren Buffet is famously quoted as one of the best investors the world has ever seen. The secret of his status lies in the age at which he started investing. Not always is it the good investments that lead to higher returns. What makes a good investment great is time. Once you learn that, you start your compounding journey.
3. Risk and returns go hand in hand
Higher the risk, the higher the rewards. This has been a famous saying which undoubtedly is held. An investment like fixed deposits is the safest investment with minimum risk, but they hardly lead to good returns. These investments barely even beat inflation. When investments are made, it is essential to beat inflation. Thus, options like equities and mutual funds are really necessary to grow.
Too much of anything isn’t a good idea. Thus you must understand the risk you are taking. Always consider the loss that may occur and if you are okay with taking that loss. Only then should you consider that investment.
4. Investment should never be based on debt
Sometimes, out of competition, people tend to take loans or debts to invest. This is not at all recommended. It may seem tempting but involves high risks. The market is highly sensitive, and you cannot predict anything with a hundred percent surety. In a worst-case scenario, you borrow some money to invest in high-performing stocks. In a few days, you observed a substantial reduction in the share prices, leading to a loss. Huge losses in the stock market can take up to 5-7 years to make up for it. Thus borrowing money in this unpredictable situation must be avoided to lessen the risks involved.
5. Invest in yourself and trust your abilities
While investment is about experience, it is also about gaining knowledge. One must identify the threats and potential of the assets they feel interested in. Give yourself time and educate yourself about the investment options and industries. There are all kinds of chaos in the world of investment markets. Make sure you try to listen to the voice that leads you to the good path. Decrease the noise and take educated as well as informed decisions. Do not get influenced by the loudest cheer, instead research to identify the assets with potential.
Stick to the basic principles of investing, which will pave your way for future challenges.
Now that we have discussed some of the rules of money that can help you stay in the game of finances, we believe you will invest more attentively. Staying financially fit not only increases your income but also helps you grow in other aspects of life, stress-free.
Don’t wait until it’s too late.
Start today and secure your future.