The Secret Life of a Private Investor: September 2016

It’s fall and a great time to review this year’s performance and to start planning for next year. October is the perfect month to do it. This weekend is well in advance of any holiday planning and partying for the coming months. It is also far enough along to evaluate how successful your financial goals have been this year.

For some people, that thought may be as scary as a Halloween Haunted House!

It really doesn’t need to be! If you look closely at how a haunted house is put together, it’s probably not that frightening at all!

The same is true for building wealth. There are a few secrets too, so let’s demystify them right now!

Expenses Are Like Apples

It is difficult to follow an individual apple when a whole bunch are floating around in one tub. The same can be said of your monthly expenses! There is no way to know what your expenses are if you don’t pin them down and keep track of all the details.

Just drawing from your bank account when needed doesn’t help you distinguish where your money is going. It certainly doesn’t help you track that bad apple that could be costing you more each month than you think!

You must have a budget! This is not a dirty word! It is simply a list of planned expenses within a month. You must know the budget, and you must understand the budget.

It should include all the basic items such as housing - whether it’s rent or a mortgage, utilities and insurance, healthcare, car or other travel expenses, food and sundries, vacations and visits with family. Your budget must include money for you to enjoy yourself as well. Add anything that is a particular interest to you such as entertainment and hobbies, pets and their care, and, don’t forget some room for unexpected expenditures.

Compare these expenses to your income and adjust accordingly. Remember that you will also need to set some of your income aside for your emergency fund (if it is not already topped -off) and for your future. The purpose of the budget is to ensure that you have the ability to stay on track with your financial goals, enjoy life and even create additional wealth.

Beware The Double Edged Blade!

Debt is like a chain saw. A chain saw can fell a tree with a few skillful swipes, or it can reduce something to a useless pile of dust! Debt can be skillfully leveraged to make you rich, but it is more likely to bankrupt you if you are not careful.

The best way to live within your means is to use cash. That doesn’t mean you need to carry around a stacked wallet. If you have credit cards that you can use responsibly and pay in full each month to avoid any interest payments, by all means collect those reward points!

If you find that you are carrying a monthly balance more than a few times a year, either reign yourself in or cut the cards! Paying interest to your creditor is robbing yourself of your future funds!

Save debt for business ventures where you can use it for a significant advantage over your competition. Otherwise, stick to cash - it will simplify your life.

Look At Yourself

Most people do not have a financial goal at all. Some have a vague idea that they will need money for their retirement, but the view changes drastically from day to day because they have never made a plan. It is like walking by a fun house mirror and seeing yourself distort. Most people will pick the view they like best whether it is realistic or not.

Are you accepting what you see in your financial future? Do you just have some generalized overwhelming number, like a million dollars? Or have you carefully considered what your annual expenses will be?

While no person can see into the future, it is possible to take note and project your typical expenses, and anything else you plan to pursue in retirement.

Take the time to write it out and look at the estimated monthly and annual total. Your budget can be a great tool for this. These recurring expenses will give you a clearer idea of your undistorted target. This is a crucial step. How can you get focused, and make sense of your future when it is all warped out of shape with guesses and hopes?

Once you understand what your needs will be, it will be easier to know what contributions you will need to make to achieve this plan.

Distribute Fairly

Many people are familiar with the expression: You must pay yourself first. This is an important mindset to adopt when saving.

Most people think that a person must be very disciplined to build wealth. However, most people just don’t have that much discipline! Can you be satisfied with one piece of candy or one potato chip?

Probably not!

But that’s OK. Discipline can be a mythical beast when it comes to creating your wealth. Find all the discipline that you can muster, and instead of promising yourself that you will save every month, use your discipline to setup an automatic savings plan. Have an amount automatically deducted from your income and sent to a separate account, such as your 401K, where you can not readily access the funds.

Don’t think of this as an emergency fund. An emergency fund (6 months of living expenses) should be a separate account. The emergency funds should be somewhat accessible. Your retirement funds should be virtually inaccessible.

Diversify

It may not be the best idea - or very satisfying - to wear the same Halloween costume as everybody else.

In the same way, it’s probably not the best idea to keep all of your funds in the same place. By not diversifying, the investment can be subject to risk, or poor performance. This is especially true for the stock market, but can even apply to your savings account at your local bank. For healthy investments, it is best to diversify and hedge against any drop, bankruptcy or other financial misfortune.

Diversifying your funds in a way where you rely more on compound interest than in market volatility. A good plan is to diversify your investments to ensure that you’re getting the best rate of return on your funds while staying within your comfort level for investment risk. A steady return may not be as exciting as playing the stock market, but it may help you get a great night’s sleep

Once you have placed some of your funds into safe, secure investments with a good return, it will become easier to invest more. The more money you make, the more opportunities you have to save and invest.

Rinse and repeat and your sacrifices will reward you with a life that can be enjoyed to the fullest!

These steps are good places to start a more conscious and directed route to achieving your financial freedom. Read, reflect and take what will work for you.

Bottom line is that there is no blanket strategy. Each person must evaluate their own circumstances, needs and desires. Get the help you need to achieve financial freedom.

Above all, believe in yourself and believe that you will achieve your goal!

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Sources:

Lynda at Sonoran Sun | Private Equity Investments

Most people know the story of the tortoise and the hare.

As the story goes, tired of the Hare's boastful behavior, the Tortoise challenges him to a race. The hare soon leaves the tortoise behind and, confident of winning, takes a nap midway through the race. However, when the Hare awakes, he finds that his competitor, crawling slowly but steadily, has reached the finish line before him.

What does this have to do with investing?

The Hare, thinking that a swift departure is all that is needed, became complacent. The Tortoise, who slowly yet consistently advances, wins the day.

In today’s popular media, advertisers use a lot of pressure to get people to invest and invest quickly:

“Time is running out!!!”

“Start growing your savings today!!!”

“Make up for all the years you didn’t invest.”

“Social Security is running out!!!”

...and many other such calls to action. In most cases this is harmless – meaning the investor gets a little or no return. In other cases, a person could lose everything they invested.

How is a person to know if an investment opportunity is really sound?

5 Ways To Make Sure

You Have Considered All Aspects Of A

Potential Investment

1. Never Make A Quick Decision.

You may have worked months or years to save those funds. Don’t make a sudden decision to place them. Although you may convince yourself you are thinking logically, and that you understand everything that was just explained to you, you may not be. Just because you don’t have any immediate questions, that doesn’t mean you won’t have some later that day.

No matter what, wait at least a day or longer to digest and think about the information. If you are being told that it is a limited time offer, or that “many other investors are waiting” recognize this as high pressure sales, or maybe even potential fraud.

2. Educate Yourself

Get data. In addition to learning more about the opportunity, find out the track record of the person offering it to you and the company they work for. Find out exactly how this product is going to help you reach financial independence. Don’t be shy or embarrassed. Ask questions — and expect complete answers.

3. Weigh It, Measure It And Make Sure Nothing Is Lacking

Create a list of outcomes. The good, the bad and the uncertain. Don’t just focus on the rosy return you are being offered. Make sure to write down at least a couple of ways this investment can go wrong (money locked in for a certain term, risky placement, etc.) and how much money you could lose (is the offering insured/backed/reputable?). If you think it's a sure thing and that nothing can go wrong, then that's a sure sign you need to dig deeper.

4. Talk About It

Discuss the opportunity with someone else. To do this, you have to actually understand something first so that you can explain it to someone else. second, you are getting feedback from someone who doesn't have an emotional vested interest from this decision.

5. Step Into Their Shoes

Don’t be swayed by grandiose promises of huge returns. In addition to asking yourself how this investment benefits you, also consider how the person or company selling it will benefit. Their motivation may not be in your best interest.

The Tortoise won the day by advancing slowly and steadily. Thinking more slowly and deliberately will help you with all your important decisions, not just financial ones. Doing so may not protect you from making mistakes in the future, but you'll make fewer and less costly ones.