In today’s financial world, many people still believe that long-term financial planning is only important for the wealthy. Others think that it is a task best left to professionals, but in reality there are many steps that the average investor can take to solidify his financial future.
The question here is do some people still don’t know why they should invest? It is vital to invest because the idea behind investing is that money is put to use in such a way that it is likely to turn into more money. This could happen because someone is willing to pay interest to use the money or because the value of whatever security the money was used to buy increases during the period of ownership.
In simple terms, investorguide notes: “Destinations for invested money include savings accounts, stocks, bonds, mutual funds and numerous other investment options.” Further questions remain whether there can be proper investment without financial planning because both of them work together. Financial planning helps you to know your net-worth. The first step in the financial planning process is to determine net-worth. In simple term, your net-worth is the sum of your assets minus the sum of your debts.
The need for any investor to know his net-worth is critical because it serves as a jumping off point to begin thinking about his financial future.
Financial experts believe that assets include all of an investor’s assets including real estate, securities, valuables and cash. While debts include mortgages, car loans and credit card balances, and should be subtracted from the assets to determine net worth.
Personal finance experts at investorguide believe that as soon as you begin to bring in enough money so that a portion of it may be set aside for investing, a plan is necessary to take full advantage of that money. “The goal of financial planning, then, is simply to find ways to increase net worth at a steady pace. Saving money, allowing assets to appreciate, and paying down debt will all contribute to this goal,” they noted.
Particularly, one of the most important aspects of investing is determining time horizons –meaning that it is crucial to know when you will need the money. The questions are vital –will I need the money I invested in the short, medium or long term. In an advisory capacity, unless there is unforeseen incidence, investments are better anchored on long term purposes.
“Common time horizons are based on large future expenses, such as retirement, college, houses or cars. Knowing when money will be needed allows for the most effective investment strategy to be tailored to fit the specific goals that have been outlined,” said financial experts at investorguide.
The amount of money available to invest also plays an important role in what investments can be purchased. This is because some investments are subject to limited access because they require certain minimum amount.
“More generally, investing a greater amount of money opens the door to a portfolio with more risk and potentially greater returns. Despite the importance of investing to your overall long-term financial situation, money for health, auto and life insurance and retirement plan contributions should be a higher priority, and should be budgeted for before beginning to invest. Additionally, investing should begin after high-interest debt, especially credit card debt, is paid off. Because after-tax returns will probably not exceed the interest rates paid on credit card debt, paying off the debt first will increase the amount of money you have each month,” these experts advised.
By: Iheanyi Nwachukwu
