Investing Basics

The Importance of Saving for Short Term Goals

May 20, 2013 Tushar Mathur No comments

We hear a lot about investing for the long term: for events such as our retirement in several decades from now, for example. However, we don’t tend to hear as much about short term investments and yet these can be just as important in many circumstances.

These investments are ideal when you have a short term goal you want to hit. This could be a goal that requires you to have a specific sum of money to achieve it, or it could simply be a savings goal.

Understanding short term goals

Here are some examples of short term goals you could go for, and how they factor in when we’re thinking about money.

A 6 month goal to pay off an outstanding credit card debt
A 3 month goal to save up for an online course to provide you with an additional qualification to help further your career
A 6 month goal to save $500

As you can see, it is enough simply to want to save a particular sum of money for a particular length of time. You don’t have to have something in mind to spend it on, or even a bill or debt you want to clear. Simply wanting to save is enough of a goal for anyone to aim for – and if you are successful in saving and investing that money for the short term, you’ll find it easier to do so for the long term as well.

Why are short term savings goals important?

We’ve already discovered one reason – namely that they can get you in the mood for saving for the long term as well. But there are other good reasons. For example they can help you achieve long term goals as well.

Take the above example focusing on the ideal of saving up for 3 months to invest in an online course to achieve another qualification. If you were to achieve this goal, you could complete your online course. You’d then stand a better chance of getting a better paid job which would allow you to save more money in the future as well. This is one of the best examples you could consider in this situation, as it represents how easy it is to scale up a small goal into a much larger one.

So if you don’t already have any short term savings goals in place, why not think of one or two to achieve now? It could be as simple as not spending frivolously for the next week, to see how much you can save in the process. It could be a three month goal to help you save up to pay off a credit card debt. Whatever it is, it should be something you can achieve with a little hard work, and something that will give you a good payoff.

You might be surprised how much more positive you’ll feel about saving when you can achieve short term goals such as these.

Why Stock Market Investing Isn’t Gambling?

April 28, 2013 Tushar Mathur No comments

If you are looking to be entertained, gambling online will probably be better than stock investing. You can click here to experience an online casino site, and get the chance to win, or lose, big money.

Investing however is aimed for the pure gain of money; therefore it is much different than gambling.

On the one hand, there is a lot of similarity in terms of investment in the stock market and gambling as you can both acquire a lot of money and also lose a lot as well, in a very short time period. This is a general outlook of these two. On the other side, there are many differences that make investments in stock markets different from gambling.

As per definitions, both investing and gambling differ too. While gambling is betting, an amount at a risk of whether you would profit out of it or not, investment on the other hand is committing an amount of money for financial gain only. Investing in stock market would be a process where you would have to be on a look out for the rising and falling market trends that would help you gain money or lose it. While in gambling, it is going to be pure luck when the odds will work in your favour making it easy for you to win, but you would also have to face losses just the same.

Investing in stock market would not give you results that are not random but work with the rise and fall in the market trends, while gambling is again by chance that you would win or lose. Investing in stock market and choosing a right company can guarantee you a good business that you would mint money from. Of course, there will be downfalls, where your investment can bring you some loss, but that is a part of investing in stock market. Investing in a stock market is a continuous process where you would be making investments for a long period of time, and gambling you would limit yourself to the cash in hand that you would have.

When you lose money in gambling, you lose further, as you would again bet a lot of money in order to gain back the money you have lost. But investing in stocks would mean that you own the stock, and as the price rises and falls in the market, you would still benefit with your investment.

Investment in stock marketing would become equal to gambling only if you randomly select one stock or the other making it a very risky business. The uncertainty rises with multiple jumps of stock market, making it equal to gambling. So make sure that you invest wisely, now that you know that stock market investing is not equal to gambling.

Knowledge is Power: How Much Financial Knowledge Do You Have?

April 15, 2013 Tushar Mathur 2 Comments

If you want to solve a financial problem in your life, you need to seek out the right knowledge to achieve that aim. Oftentimes this is where people go wrong when they are faced with the challenge of choosing the right savings plan or investing in the right stocks. Indeed this applies to any financial situation you might find yourself in during your life.

The typical approach to a financial issue is this: people go on the knowledge they already have in order to find a solution. For example, they may know of two types of savings vehicles they can use to save for the future. So they base their decision on those two vehicles and never think to see what else is out there.

Broadening your horizons

In truth, it is easier to solve any financial problem if you have more information to use to help you make your choice. This means taking the time to find that information instead of assuming you know everything there is to know already.

Your first task whenever you have a problem of this type is to find as much information as you can. Don’t make a kneejerk decision based on too little information or data. Let’s say for example you have $5,000 to invest for the future. Maybe you’ve been given a bonus or come into a lump sum for some reason. You might immediately think of investing it in shares or putting it in a basic savings account. However, if you take the time to find out what else you could do with it, you’ll realize you can generate lots of other possibilities.

This is why knowledge is power – it’s not just something people say. However it is up to you to decide how much power you want to have over your finances and your financial future. In truth the sooner you start educating yourself and amassing this knowledge, the sooner you will be able to improve your financial future.

Starting today

It can be all too easy to look back on your life and see decisions you made that you don’t approve of now. You can see mistakes very easily indeed when you have 20/20 vision – commonly called hindsight in this situation.

However, you should be aware you can choose today to change things. Whatever you may have done financially in the past, you can change things today and head in a new direction. This is possible when you amass fresh knowledge and use it to enhance your financial position.

Don’t make the mistake of thinking you have to have lots of money for this to work either. It doesn’t matter how financially well off you are, and in fact, you can use newfound knowledge to help you cement a more positive financial position in the future.

So remember the phrase ‘knowledge is power’ and consider how much (or how little) financial power you currently have. If you don’t have much, you know what to do about it.

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The Benefits of Locking Up Your Money for Longer

April 08, 2013 Tushar Mathur No comments

We all know how important it is to manage our money in the best possible way. Ideally this means building up an emergency fund to cover three months’ worth of outgoings in case we should need it, and then maximizing the rest of the available cash we have.

Step one is to go for tax free investments, followed by ones that are taxed by the government. However, beyond this you should think about how long you want to tie up your money for, and that’s the subject of this article.

Why is it worth tying up your money?

The most basic kind of account you can get is an instant access account. This means you can withdraw money whenever you have the need to. It’s a good idea to have one of these; indeed your emergency fund should be in this type of account.

However, any additional savings above and beyond this should be put into another type of savings vehicle. For the purposes of this article we’re not talking about stocks, shares or anything similar. We’re focusing on savings accounts – specifically those that lock in your money for one or more years.

The main benefit of doing this is that you’ll get more interest. In return for giving the bank your cash for the specified period of time, they’ll give you more interest. Generally speaking, you can find accounts that give you fixed interest for a period of between one and five years. If you want to tie up your money for five years you’ll get a rate of interest that is far better than that offered for a two year account.

Points to remember before choosing an account

There are a couple of points to remember here. Firstly, make sure you are willing to tie up your money for a specific period of time. You might be happier agreeing to a two year period instead of a five year period. It may also depend on which other accounts you have and how much cash you are happy to have available for instant access. You may prefer to have six months’ cash put away for emergencies before you tie up some cash for a higher interest rate.

Most of these accounts do allow access if you really need to get at the money, but there is usually a penalty involved. This is typically a number of days’ worth of interest lost. For example, you might lose 200 days interest. As you can see this could amount to a significant sum, depending on how much money you have in the account and what the attached interest rate happens to be.

Thus it is worth thinking carefully about the options available to you and the best accounts to get if you want to spread your money around and tie it up for a better return. Remember – there is nothing to stop you getting more than one account of this type if you want to hedge your bets over several different lengths of time.

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Understanding the Concept of Emergency Cash

April 01, 2013 Tushar Mathur No comments

Many people are focused on the idea of saving for the future, investing in various stocks, shares and accounts and preparing for what the future may hold. However some people completely forget to account for emergency cash in this picture – cash you’d need to lay your hands on in a hurry if the situation ever arose.

What is emergency cash?

Generally speaking, this is the cash that would pay your rent or mortgage. It’s also the cash that would pay your bills and keep you afloat for three months if you suddenly found yourself with zero money coming in. This might sound like a worst case scenario and it is, but it’s the reason why you have to generate an emergency cash fund in case you ever need it.

How would you cope if you lost your job?

This is normally why you’d find yourself with zero income. It’s easy to think you’re in a safe position at work, but plenty of people lose their jobs every month and never see it coming. It’s also the case that plenty of people have made no provision for this type of event – an event that has become more common owing to the worldwide recession.

If you already have an emergency fund, congratulations are in order. You know you have enough cash set aside to pay the bills for a three month period. This means you’ve got three months to find alternative sources of income so you are safe from real financial worries. It’ll still be a worrying time of course, but it won’t be as bad as it might be otherwise.

Resolve to set up an emergency fund today

If you don’t yet have the cash you need, today is the day to start amassing it. There are two main criteria an emergency fund has to meet:

* It has to be in an instant access account
* It has to cover three months’ worth of outgoings

Figure out how much cash you can save into your fund every week or month and build it up as steadily as you can until you hit your target amount. For example, if you need $1500 a month to meet all your bills, you will need $4500 in your fund. If you can save $250 a month towards this target, it’ll take 18 months to hit your target. Even if something happens in the meantime, you’ll have more cash set aside for emergencies than you’d have had otherwise.

Some people dip into their emergency funds for other reasons too. For example they suddenly find they need a new refrigerator and they need to pay for it quickly. In this case they’ll use the money they need to solve the emergency, and then work to replace it as quickly as possible out of their earnings until they achieve their emergency balance again.

As you can see, it is incredibly important to make sure you are prepared for the worst. At least then if it does happen, you are in a position financially to cope with it.

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How Complex Should Your Portfolio Be?

March 25, 2013 Tushar Mathur No comments

Some people seem to think their investment portfolio isn’t doing the job unless and until it becomes highly complex in nature. But how true or helpful is this? Can you really say your investment portfolio is better for being more complex?

Too complex is as dangerous with regard to investments as being too simplistic. Striking the right balance can be tricky and it can sometimes feel as if you’re trying to get a pendulum to stop at the exact right point for you. Let’s look at the pros and cons of being simplistic or complex with regard to your investments.

The pros and cons of staying simple

The main advantage of keeping things simple is you will be able to gain a better understanding of where your investments are and what they are earning. The more you have the more complex it becomes and the more likely it is you will miss a trick somewhere.

Of course, keeping things simple can backfire on you too. This is because you can end up with too few investments that don’t really serve your needs as well as they should. However different people have different requirements so you have to think about whether a simple investment plan would suit you, or whether you want something more involved.

The pros and cons of being more complex

Here the main advantage is you can put money into a wider range of investments. However the downside is clear – there is a higher chance of investing in something you don’t fully understand. You may also find it harder to keep track of your investments, so you won’t find it as easy to see when they are no longer working as well for you.

What is the bottom line?

The bottom line is you should be able to understand your portfolio. If you can’t understand it you’ll end up with no idea of whether it is performing well for you or not. You cannot make a confident decision about an investment if you cannot understand it properly.

Some people rely on advisers to give them the information they need to build a portfolio. Yet while advisers can be useful to an extent, there is a tendency to rely on them a little too much. This is why you need to make sure you can understand your own investments instead of taking the easy route and trusting someone else’s explanation and signing on the dotted line. This is never a good way to approach things and it should not be your main method for choosing investments. Do your own homework and make sure you understand every investment you sink money into, whether it is one investment or ten.

There is no clear answer to the question of complexity. Yet it is fair to say being either too simplistic or too complex makes it more likely you will run into problems in some way. Consider your own investment plan and ask yourself whether it veers into either extreme.

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Three Months In: How Are Your Financial Goals Shaping Up for 2013?

March 18, 2013 Tushar Mathur No comments

It may still seem as if the festive season only finished yesterday, but in fact we are nearly a quarter of the way through the ‘New Year’. This provides the perfect opportunity to assess the financial goals you made at the beginning of January, to see how they are progressing.

It means you have a chance to look back over the last three months to see what you have achieved during that time. Have you done what you wanted to do? Have you achieved some short term goals yet? Perhaps you have already ticked off some of your goals and set new ones. Perhaps you are well on the way to accomplishing some of your longer term goals. Perhaps you have yet to begin making any real progress at all, despite setting goals at the start of the year.

Look back and create a progress report

Don’t just look back on the last three months and think about them randomly. Make some notes. What worked? What didn’t work? Which goals are well on the way to being achieved? Which ones are you struggling to get close to?

It’s worth thinking about what you can realistically achieve at this point. It may be you have a savings target set for the end of the year, and you are not yet 25% of the way there. However this doesn’t mean you cannot still hit your target. You should still focus on redoubling your efforts to get there; you never know if an unexpected source of cash could come up, or you might get a promotion. Having a goal often makes unusual things happen – things you may never expect. A progress report is simply a good way of looking at where you are.

Look ahead and revise your goals if necessary

There are lots of reasons why you may need or want to revise your financial goals for 2013 at this stage. For example you may have achieved something you wanted to do. Perhaps one short term goal was to save $500 over those first three months to put towards some home improvements. Now you can invest in those improvements, tick the goal off your list and make a new one to replace it.

Another reason may be that your initial goal just isn’t working. Perhaps you have tried approaching it in a variety of ways and nothing has worked. In this situation you may have to revise your goal or scrap it altogether. There are normally ways to achieve any goal you set for yourself, but it could be that you don’t yet have the knowledge or the finances to achieve the goal you originally set.

Once you have reviewed your goals, think about doing the same again at the end of June. This is the halfway point of the year, and it provides an ideal time to review your progress at that point as well. It also means you can review the results of any adjustments you make at this stage. So you see this is the best way to ensure you hit all your goals.

Should You Use the Internet to Explore Investment Ideas?

March 11, 2013 Tushar Mathur 1 Comment

It’s amazing how quickly the internet has become such an integral part of our lives. Most of us are easily old enough to remember clearly a time when the internet didn’t exist and there was no such thing as email, let alone online shopping.

Of course many of us use the internet for research and exploration purposes just as much as we use it for other reasons. However not all internet sources are reliable. If you are using the internet to explore various investment ideas, it is important to ensure you verify your sources and only go to those you know you can trust.

Here are some tips on how to make sure you don’t go astray when you do your research in this way.

Start with well known sources

There are plenty of reliable sources you can use as a starting point. Websites belonging to banks and other financial organizations will provide you with lots of facts. Just remember they will usually only present the information as it pertains to their own business. For instance they’re not going to present their own investments as anything other than the best ones on the market. They’re certainly not going to mention the competition!

Bear this in mind as you explore the vast array of information the internet has to offer.

Use blogs as another source of information and opinions

Blogs tend to focus more on opinions than regular web articles do. They are often written in first person from a single viewpoint, so they can provide further insight into a particular investment opportunity.

However you should make sure you seek out opinions from both sides of the fence. For example you might come across a blog written by someone who has made a lot of money on the stock market. They would understandably be enthusiastic about the possibilities the stock market offers to those who are willing to dip their toes into this area. However they may not make any mention of the potential downside of this area.

To this end you need to find a blogger who is perhaps against the stock market or hasn’t had a lot of success with it. This way you can find both sides of the equation and evaluate them both in your own time.

Bottom line – you must come to your own conclusions when doing research online

Finding investment advice online is much the same as deciding whether or not to buy a book. You read about the book, you read a selection of positive and negative reviews, you think about them and then make the decision on whether to get it or not. Also, make sure that you have money to invest. Don’t add to your debt by taking a payday loan online just because you learnt about a stock thats a sure thing.

Of course choosing a book isn’t as important as choosing investment advice. However you may still go to the same place to get the information you need to make that decision – namely the internet. So by all means enjoy researching investment topics online, but just make sure you edit and censor the information you receive before acting on it in any way.

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How Often Do You Review Your Investment Plans?

March 04, 2013 Tushar Mathur No comments

We all know how important it is to invest in our futures. For some this may mean investing in new skills so we can earn more money. For others it may mean searching for stocks and bonds that seem likely to bring in the best returns. Still more people will consider investing in property. Some are likely to do all three (and more besides).

This is why you need an investment plan, so you can be sure you are going in the right direction. However it is not just a case of setting up a plan and then forgetting all about it. Just as our lives change direction from time to time, so our investment plans can change too. A plan you set up five years ago with good intentions may no longer be relevant today, so it makes sense to review it from time to time.

How to review an investment plan

Firstly make sure you have the time to sit down and carefully look through the plan. Remind yourself why you set it up in the first place. What goals did you have in mind? What were your aims at the time? Once you remind yourself of the answers to these questions you can see whether they are still applicable to how you live your life today.

The next step is to mark those sections of the plan that are still valid. Not everything will change, and some investments may still prove worthwhile. The trick is to separate the parts that are still working from the parts that no longer prove their worth. By doing this you can narrow things down to the parts that need attention.

What should you do when changes are needed?

You will need to consider whether you can change or stop certain investments without losing money. For example you may only be four years into a five year investment plan that would lose you money if you were to quit now. In this situation it is best to continue for the remaining period and then switch the money into another investment. You can use the intervening time to find something more suitable.

In other situations you may be able to terminate an account or investment with no such trouble. However before you do this it is best to consider the other options you have available. Once you have revised your investment goals and your investment plan, you can focus on where to move your money to. Once you have all the answers you need, you can move ahead and make new investments where required.

You can see how important it is to review your plans every now and then. Even if you only do it once a year it is one of the most important things you can do to keep an eye on the security of your future. Just because something works now, it doesn’t mean it will continue to work in the future. Finding the right investments is always something to work on.

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The Importance of Planning and Saving for the Future

February 25, 2013 Tushar Mathur No comments

Most of us realize we should put some regular effort into saving money for our futures. However in reality we don’t all manage to do it. One report just released by HSBC says people in the US have only managed to save for around two thirds of their retirement years (on average). Of course none of us knows how long we will have to enjoy retirement, but according to the study the average length of time we have finances to cover is 14 years. The study also found the average retirement stretches out for 21 years.

The figure does not become any more promising if we take a look around the globe. Other countries find themselves in a similar position, with far less in savings on average than the number of years people have left to live.

How can you make sure you don’t become one of these statistics?

There is a lot to be said for living for the moment. But we also have to look ahead and ensure we can live comfortably in the future too. After all we spend so much of our lives working: it seems a shame not to enjoy our retirement and have a reasonable amount of money to see us through this period of time.

So it is a delicate balance we must strike: to spend money today and also to save for the future. If we can make sure we are able to do both, we should avoid becoming one of the statistics mentioned above.

How can we plan for the future?

The real task is to ensure we live properly today while freeing up some cash to invest in our futures. The current period of time is challenging for many people, with wages stagnant and many goods and services shooting up in price. This means many people are struggling to save anything at all. Many do not even have the luxury of a financial cushion to rely on in case anything should happen.

So you can see the task is to take a serious look at your finances now to see where you could possibly make savings. Many people can free up some cash in one way or another, depending on their situation. Even if it means giving up one or two so called luxuries, wouldn’t you rather have something to invest in your future? After all once your retirement arrives you will have no more time to build a nest egg to survive on.

They say the longest journey starts with one small step. This is true, and so is the need to focus on your desire to plan for the future. Even if you only start in the smallest of ways, you will be heading in the right direction. And once you get started you may gather pace and find new ways to save for your retirement.

The figures do not lie, and if you want to be able to fund your retirement the best time to start is now.

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Are You Investing in YOU?

February 11, 2013 Tushar Mathur 3 Comments

Whenever you hear someone talking about investments, you probably immediately think of the different types of investments they (or you) should make. But it can pay dividends to think along different lines too. This is particularly true when you start thinking about your own needs.

This is where we get to the idea of investing in you. If you were to read any definitive guide on investing, you’d notice that while some of the advice applied to you, not all of it would. The same would apply to other people. In reality no two people will ever have exactly the same requirements for their finances. Once you figure in their situation, their job, their future plans and so on, you’ll see how true this is.

So what do we mean by investing in you?

You have to figure out what you want from life in terms of your finances. If you do this you can work out how to gain the best possible results – not to mention amassing the largest sum of money to invest in your future. This is where we’re starting to get to the root of what it means to invest in you.

The idea here is to invest in your skills so you become better able to choose the right investments, and better able to free up more cash to put into them. The first way to do this is simply to educate yourself on how to invest your money for the best. If you have little knowledge of how to invest money, you could improve your knowledge by going online or buying books that will tell you more about the different investments available. The more you know about them, the less likely it is you’ll invest in the wrong ones or make any financial mistakes.

The other way of investing in you is to further your career so you are capable of earning more money. The investment here could be in a course or further qualification of some kind, so you are able to increase your worth to gain a better job.

As you can see, both of these methods invest in you as a person in different ways. Yet they both have one end goal in common – the ability to achieve the results you want by improving your own knowledge and ability to generate money to invest.

Decide where your investments need to be made

Of course you may already know a great deal about investments of all kinds, or at least of the kinds that interest you. However this is only the first step. You now need to ensure you generate enough money with your skills to be able to create those investments.

Conversely you may have the cash available to make investments but you may not have the knowledge required to help you place that money in the best way for your needs. This is why it makes sense to decide where best to invest in YOU, so you get the results you want.

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New Year, New Financial Goals?

February 04, 2013 Tushar Mathur No comments

We are now a little over a month into the New Year. The festive season may seem long gone, as is the time for setting New Year’s Resolutions. But it doesn’t mean it is too late to make strides in the right direction when it comes to achieving your financial goals.

For example, you may have set a financial resolution for the New Year. Whatever it may have been now is a good time to review your resolution and your progress. Have you done what you wanted to do? Have you achieved anything yet? Have you taken notable strides towards your financial goals?

If the answer is yes, you can review your position, adjust your focus if necessary and then keep on going. If the answer is no, it is also a good time to review your position. You may think you have failed in achieving your goals, or at least taking steps towards them. But this isn’t necessarily the case. You are only failing if you ditch your resolution now.

Have you forgotten your goal?

Don’t worry if you have – people around the world will have forgotten their goals by now. The thing that will separate you from the ones who failed is that you can carry on. There will be obstacles and challenges in the way of everything you try to achieve. It is how you get round or over these obstacles that will make the difference.

This is why it makes sense to review your goal and to see what is working and what isn’t. Even if you have strayed away from your goal over the past few days or weeks, you can make changes now to refocus.

How to get back on track

If you have found it difficult to remain on schedule with regard to your financial goal, think about what made you set it in the first place. Very often you can focus on the motivating reasons and use those to get you back on track again.

Alternatively you may find you no longer have any passion to reach that same goal. This can happen, and if it does this is the ideal time to find a new focus – a new financial goal to target. This doesn’t mean the earlier goal was a failure, or that you didn’t choose the right one to begin with. Times change and so do we, which is why we must be ready to find the right solution to the problem.

The point is we can set new financial goals or re-ignite old ones at any time of the year. Don’t wait until next January 1st to figure out what your goal is for the New Year, or to restart an old one. Start today and look at achieving your financial goals again. You’ll be glad you did, especially when you look back in months and years to come and see the progress you made. You might be pleasantly surprised at how much you achieved.