Financial planning is the only way for a household, an individual or an entrepreneur to secure a better tomorrow for themselves and those they care about. The biggest misconception about finances is the idea that hoarding is good, while loans are bad. On the one hand, stacking up your emergency fund and your savings account are great, same as investing in your 401K, however, using money in a more active way can be more rewarding. Imagine a scenario where you have a great opportunity to invest and get an amazing return, is the risk really so great that it’s worth missing out on this amazing opportunity. Here’s a brief rundown of what you should know about this.
Are you ready to invest
Previously we talked about alternative to investing in order to make money (saving, etc.) in a context that could be interpreted as too cautious, even negative, yet, this is definitely not the case. You see, an emergency fund needs to hold no more than three months’ worth of your expenses (a modest sum) in order to be considered decent (well… sufficient, at very least). Your debts also need to be covered, at least those that have a great interest rate. All in all, you can’t allow for a scenario where you go unprepared into this venture or mix up your financial priorities. Therefore, you should first check if you’re ready to invest, in the first place.
Consider the risk
The next thing you need to do is consider the risk that you’re exposing yourself to. Remember, you’re doing this in order to improve your financial status but what are the risks and downsides? What is the worst case scenario? Are you just going to maintain a Status Quo or (more likely) be in a worse situation than you were in the past? If the latter is the case, you need to consider how much worse. Also, remember that the riskiest investments pay off the most but also leave you the most vulnerable. Therefore, it might be worth your while to look for a safer investment, something like fixed income investments in Australia and collect your ROI over time.
The terms of your loan
A lot of people see the loan as the money they need and fail to consider how this will interact with the rest of the investment. For instance, what good is an investment if the bulk of your profit gets devoured by an unrealistic monthly credit payment with a high interest rate? Start by reviewing your own credit history and credit score, check out what options you have and talk to these potential lenders before you make a move. Also, start getting your collateral estimated, so that you see exactly what kind of assets you have on your disposal.
The immediate impact
The next thing you need to bear in mind is the fact that the investment you make right away may have an impact on some of your short-term plans. For instance, when paying off a hefty loan or waiting for your investment to pay off you may be forced to lead a tad more austere lifestyle. What does this mean for you as an individual? Does it mean that you’ll have to push that home remodeling project a couple of years in the future? Does it mean skipping this year’s journey abroad? This is something that only you can know.
To some people, amassing wealth just for the sake of it may be a reason good enough but you might need to find the goal that speaks strongly to you. At times, leading this austere lifestyle will be hard, which is why you need to know what all of this is for. By rationalizing how all of this will help you reach your long-term goals and bring your dreams to life, you’ll have a much easier job of persevering.
The last thing you need to bear in mind is the fact that while money may not be the most important thing in life, it should definitely be amongst your top priorities. No, this is not materialistic in any way, it’s just being realistic about the change that it can make. Your income determines your lifestyle, the number of options you have available and could even affect your peace of mind. All of these things are more than worth some research, planning and effort on your side.