Personal Finance and Investment Strategies
As we walk deeper into adulthood, the words “personal finance” will loom over our shoulders. We get our paychecks and suddenly find ourselves making empty promises to refuse to spend on things we don’t need.
Is there a way we can stop this temptation?
The good news is, yes, you can!
There are plenty of strategies to maintain and increase the money in your bank account in two seemingly complicated steps: saving and investing.
So, to invest or to save? The answer can be hard to hear, but the best way to keep your money moving forward is to do both.
One of the defining differences between saving and investing is what you can potentially get back from each.
The higher the risk in investing, the more we can make in the long run. However, it also risks more loss than gain.
If you put your money in the right savings account, you’ll get the exact amount of what you set aside. This consequently means saving keeps your money safe, but not as much as investing can.
Saving is the safest guarantee to retain money in your account, but you shouldn’t rely on it by itself. With investment, you increase the risk of losing money, but it can also heighten your wealth in the long run.
With the guide below as your starting point, you can learn the importance of investing against saving.
Here are ways you can get started in personal finance management both in saving and investing:
First off, budgeting. Now, this may sound basic, but this lifestyle can change how you look at how you use your daily expenses
By generating a broad cut between what you need, want, and save, you can think about what’s worth each price.
Whether you get paychecks or own a business, half of your money should be spent on more expensive necessities like rent and utilities. If you use this up earlier than expected, you won’t have to worry about it for a longer period of time.
A part of the second half would be for daily, smaller expenses like food and shopping for clothes. If you put the necessities aside earlier, this number can still increase.
The second part of the second half, ranging from 20%-30%, will be for paying debt and saving for long-term like emergencies.
Speaking of emergencies, make sure to keep saving the same percentage of your money aside for these unexpected expenses. Ideally, if you set 20% of your net income or paycheck aside until the emergency, it will help fuel your financial goals like retirement funds.
Keep your debts to a minimum! This means something as simple as not spending more than you earn, which can involve leasing rather than buying.
These tips are only some of those in an endless list. There’s the deceptively complicated necessity of credit cards and retirement plans for personal finance.
Remember that although you’re capable of doing any of these on your own, you shouldn’t do it forever. Financial experts are willing to help you get started without the great need to maintain this on your own.
Investment and Portfolio Management
Some associate financial planning with the term portfolio management, which is valid but not entirely correct. Both involve putting your money aside for later, but they deal with different forms of financial management.
Financial planning is the process of developing and achieving financial goals. This has more inclination to one’s income and finances rather than investing.
Cue portfolio management.
Investment is defined as a monetary asset purchased with expectations of a higher long-term return.
Saving and investment are different in terms of risk, especially when it comes to personal finance. While you can easily take back what you put in storage, investing in assets doesn’t give you the money back.
Instead, you’ll have more potential to receive long-term rewards. Although if your investment doesn’t deliver well, you’ll also have a bigger potential for loss.
Portfolio management is the act of mixing and matching different investments to balance risk against performance.
Mastering the art of building and maintaining your portfolio will help you maximize your investments with an appropriate level of risk.
Since the stock market is continually changing, there’s no definite formula for portfolio and investment management. Fortunately, there are elements to consider when optimizing your risk/return profile.
Asset allocation invests in a mix of assets that have little to no correlation, starting with the most stable investments.
Diversification is the approach to spreading risk and reward between assets, creating a basket of investments for exposure in an asset class. It also seeks to capture more returns long-terms with less volatility at one time.
Rebalancing, most of the time, involves the sale of high-priced/low-value securities and the redeployment of the proceeds to vice versa.
There are two ways to manage your portfolio, even in personal finance: passive or active management.
Passive management has a set-it-and-forget-it strategy that involves tracking a broad market index known as indexing. Active management involves your preferred number of managers that build portfolios and make investment decisions based on research.
Since portfolio managers study everything there is to know about the market, it usually demands high fees. At the same time, it’s not always more advantageous.
Portfolio managers, through research, you won’t have any idea about, must make market risk to obtain your goal return. Passive management solves this by carefully tracking returns on benchmarks.
The more you research and study about investing, you learn that it’s a touch-and-go lifestyle. You can minimize the risks you’ll take in future investments by familiarizing its concepts, but actually starting it is what counts first.