Do not settle for learning just the basic fundamentals of investment. Strive to learn something new every day.
Have you ever wondered what’s the reason you have not yet invested in the stock market? There may be many answers: “It has never interested me”, “If I don’t have enough money for monthly expenses, less I have it to invest”, “I know a friend who invested all their savings and lost them”, “I don’t like the idea of investing because I’ll only see profits after many years”, “I don’t trust anyone with my money”, etc. The truth is that people don’t dare, and if they do, then they may be tempted to quickly withdraw the money they have invested because they think they will end up losing it or that it could be intended for something more useful.
The investment road can be long and tortuous, but the final results will be worth the effort. The “wood” that an investor is made of can only be shown after a few years; therefore, to learn the art of investment, we must understand the way of thinking of those who have persevered to achieve their goals, and they all focus on the long term and invest in companies managed by honest people, with transparent business models, comprehensible and of course, with attractive prices and favorable prospects. Successful investors such as Warren Buffett or Peter Lynch, do not use large formalisms to make their investments, nor deal with macroeconomic analysis or detailed technical reports. Do not settle for learning just the basic fundamentals of investment. Strive to learn something new every day; they have mastered the art of investment, but if you are just taking the first steps, you should consider some tips so you start off right and so your intent to travel the long road of investment will not remain only as an attempt.
If you are already convinced that to succeed in investments one must make decisions wisely, you will have to learn from the best, and for that you don’t need to travel to Tokyo or New York to attend expensive seminars; you can learn from them by reading books and articles written by people with weight in the world of finance; for example Benjamin Graham, author of a wonderful book entitled “The Intelligent Investor”, in which the foundations of something very interesting called Value Investing are explained; in this book you will understand the art of long-term investing maintaining a margin of safety. You can also use multiple forums, blogs and social networks, where besides of meeting new people with similar interests, you’ll find good investment ideas.
But one thing is to learn the basic fundamentals of investments, and quite another is to master the art of investment; this requires much more time and effort of constant learning. Combining theory and practice is essential for good results; therefore, allow yourself to make some mistakes; any error can and must become a learning experience and as one learns to walk without falling, you must be consistent and reject the idea of abandoning the path; remember that you’ve failed the moment in which you decide to give up. A good way to not fall into the temptation of giving up and to not get out of the road at the first difficulties is to establish specific targets at very short notice, for example, weekly analyze a company listed in the S&P 500 or the Dow Jones. You can also commit to do daily monitoring of fluctuations occurring in certain stock market, and try then to find the causes that might explain these variations in prices, if you prefer, you can set as weekly target reading a specialized newspaper in economics and finance or gather market information of interest to understand and exchange reviews with other people with knowledge in this field.
Reached this point you may have noticed you need the discipline to stay on track with your investments. Perhaps you’re thinking this is not for you, but keep in mind that every beginning is a challenge and you’ll get more and more excited as you go taking the first practical steps.
Dare to invest and do it with common sense.
Financial intelligence incorporates multiple dimensions and transcends the mastery of the concepts of finance.
Robert Kiyosaki says: “Financial intelligence refers not so much to how much money you earn, but how much money can you keep, how hard that money works for you and for how many generations it has been preserved.” Obviously, obtaining financial independence by constructing a business system (quadrant D) or by investing (quadrant I) requires that we have a degree of intelligence applied to the world of finance.
But financial intelligence is not only essential for those who live on the right side of the Cash Flow Quadrant; it is also needed by those at the left side: those who are not comfortable in their role of employees (quadrant E) or who independently and on their own work long hours to ensure economic sustainability (quadrant A). With certain knowledge and enough willingness to break emotional attachments, these people can begin to design a system of self-generating money and thus cross the threshold of their respective quadrants.
Obviously, financial intelligence is not limited to the mastery of the concepts of finance, but also is associated with leadership, strategic thinking, personal marketing, communication, negotiation, conflict management, social skills and management of emotional heritage, and others.
A good way to identify to what extent you possess financial intelligence, is checking the following items:
- Your income is greater than your expenses (you have capacity for saving).
- You manage to find new forms of income (in several quadrants simultaneously).
- You have identified your financial goals and you have designed your task list to achieve them.
- You know how to optimize and earn higher returns on capital.
- You feel you are on the right track to achieve your financial freedom.
The people possessing a meaningful financial intelligence always think big, and regardless of the circumstances surrounding them, continually design plans to enhance their assets and reduce their liabilities, thereby obtaining greater profitability and liquidity while they improve their quality of life.
If you want to have a financial culture that is your ally in the life project you’ve designed, you must start by understanding the functioning of money as well as the psychological aspects that drive people to use it in a certain way.
The lack of financial literacy is one of the major factors that trigger anxiety and anguish in the contemporary world.
One of the main triggers of anxiety and distress, is derived from the almost total absence of financial literacy, resulting in profound and costly mistakes regarding the generation and management of money.
Financial issues go far beyond money management; that would be equivalent to going on a holiday and taking the first plane you find without knowing where it is going. In the same way as you plan your vacation dates, destinations, accommodation, attractions you will visit, appropriate clothing depending on the destination and time of year, your budget, visas, travel insurance, etc., you should also plan your financial life.
If you think I am exaggerating, ask yourself why in the United States (for instance) half of all marriages end in divorce, and why financial issues stand out as one of its main causes; and even if they end in divorce, most (if not all) acknowledge having starred in serious discussions on issues associated with money. Ask yourself also why almost 25% of people between ages 35 and 54 have not started planning their retirement, and imagine the little economic tranquility of these people when they stop receiving their monthly salaries.
Another fact that calls us to reflection has to do with the fact that 90% of the world population (employees and self-employed) only owns 10% of the money available in the world; while the remaining 10% (business owners and investors) handles the other 90% of the global wealth. This has nothing to do with gender, race, nationality or academic preparation; It has to do with our attitude towards money and finances. The truth is there can’t be productivity and happiness, as long as money remains the main cause of strain and stress. Remember that if you are not capable of controlling money, money will control you.
Assume that money is a serious matter that involves accepting responsibility and assume the consequences of how you handle it. You don’t need to be an expert in finance to manage money in a responsible way, but always keep in mind that everything depends on you (and not your circumstances). As long as you don’t know the basic financial principles you will be prone to spending much more than you need, to indebt yourself, you won’t be able to pay monthly bills, you won’t provide happiness to your marriage, you also won’t have how to cope with unanticipated expenses (diseases, occasional housing expenses, investment opportunities, or even a new child), live constantly concerned about the lack of money and you’ll have to take drastic measures that can affect your health and that of your loved ones.
The key you need to gain and retain money is just a good financial education that contributes with the foundations needed for you to think and act.
Everyone wants to make money (some more than others), but if you really want to make money in the best way possible and for longer, the worst decision you can make will be to go out right now and try to find a good job hoping to stay a long time on it, because even if you find it, you will never have the certainty of getting the money you really want, and worse, if you get it, you may be unable to keep it, and then you will always depend on others. Remember that lifetime wages are long gone.
Keep in mind that it is not just to make money. The fact that you earn a lot of money today is no guarantee that you’ll have it tomorrow. What this really is about is that you retain that money, and your children and grandchildren should also benefit financially from what you’re doing today. So no matter how much money you make; the important thing is how much money you are able to keep, and for that there is no magic formulas or recipes.
The most important thing that you really need in order to earn and retain money is a financial education that will contribute to a good foundation for thinking and acting from the conviction that you are never going to achieve economic independence by having a good job nor even working on your own, literally forcing you to crush yourself hour by hour to more or less satisfy your basic needs and indulge yourself with an occasional treat. Always keep in mind that you deserve more than that.
Do you think you’re a person prepared to win and keep money? See if it’s true; try to answer this question as honestly as you can: Do you really know the difference between an asset and a liability? If your financial knowledge is what most people has, maybe you’re acquiring liabilities believing they are assets; and the worst is that without realizing it you’re building your own financial problems.
From a practical perspective, the first and most important rule to make money and keep it is to acquire assets, because as Robert Kiyosaki (author of Rich Dad Poor Dad) says, assets are those that put money in your pocket while liabilities will extract it (sometimes without you even realizing it). The difference between your assets and liabilities is your Net Worth. Until you assume this basic principle, you will find yourself with serious difficulties in making judgments and taking the best financial decisions on how to earn and keep your money.
Above all, remember that your time, your knowledge and skills are very valuable to only be exploited by others. Avoid selling your time in exchange for money; Use it rather to learn, design, build and implement a system that is able to generate money for itself.
Your financial goals should be the product of your convictions, and will always be adjusted to your principles, values and priorities.
One of the first difficulties when organizing personal finances has to do precisely with setting financial goals; that is, the destination to which we are going. There are no good or bad goals; you also can’t pretend to set your financial goals by copying those that other people have imposed for themselves, far from it; financial goals vary according to your attitude, your needs, your heritage and your current financial situation.
First, before you get to work on establishing your goals, keep in mind that any goal must be expressed in numbers or percentages. If you think your goal is to have enough money saved to pay for unexpected expenses of your home and vehicle, you are not really saying anything; what is “enough” for you? How will you know if you’re getting close to the goal you set if you can not see your evolution? You should rather say: I’ll save 15% of my income as of the month of January 2016. As you can see you must not only concentrate on your desire, but also quantify what you want.
A second aspect to keep in mind is that goals are the expression of a balance between ambition and realism. It’s useless to establish poorly ambitious or easily achievable goals (eg, reduce weekly coffee spending, knowing that that’s what it costs a modest breakfast of churros with chocolate) Similarly, it is not useful to set unrealistic or difficult to reach goals (eg, to reduce by 80% the monthly utility bill for next month). In the first case, if the goal is very easy to accomplish, there would be no reason to change financial habits that contribute to achieving the medium and long term plans. In the opposite case, if you set very hard or hardly achievable goals, you will feel frustrated at not being able to reach them and in the end, dismiss the possibility of establishing new guidelines to put your finances in order. You may already have noticed that goals should involve some additional effort; In other words, your goals should require you to maintain some discipline and rigor in your daily action; therefore, that’s why you should avoid goals imposed by other people. Keep in mind that your financial goals should be the product of your conviction and consequently adjusted to your principles, values and priorities.
A third element to consider when setting your financial goals is that they can not be contradictory; all of them form part of a gearing that lets you achieve the welfare state you want. If you set a financial goal like this: save 30% of my monthly salary, and another defined in terms of: allocate 80% of my salary to reduce the outstanding balance of my credit card, which one are you going to fulfill?. Obviously both contradict each other, and at least one of them is not doable.
Finally, formulate your goals in the short, medium and long term. Don’t put them all in the same boat. For a financial objective of higher order, as might be the case: ensure financial freedom after retirement, you can set a short term goal, for example: Hiring a pension plan before the end of the fist half of 2016. You can also set a goal to medium term that contributes to achieve the same goal: for example: Acquire within the next three years, a house on the beach to rent it; and finally: A long-term goal might be: To reach retirement age without mortgage commitments and maintaining ownership of the two houses.
As you can see, setting goals is a dynamic process that requires constant review and adjustment, but the faster and at an earlier age you begin to establish your long-term goals, much better; for example, can you imagine that you start planning today how to earn income after your retirement, if you think that will happen next year? It would not make much sense, right?