Very few words are uttered at the extremes of the emotional spectrum more often than those involving personal finance. From mirth to misery, finances often influence our moods, our future, and even our freedom. These changes don't come about by chance, however. Read these keys to turning your pocketbook into a source of satisfaction.
As in all things, careful planning and consideration can minimize your risks and maximize your benefits. Years and years of financial studies and experience have unearthed these four fundamental formulas of finance.
1) Diversify your Personal Finances - This is one of the easiest and most sensible steps to take, but is still often skipped over. Diversification of your assets provides security and minimizes risks, without causing you to miss out on long-term returns.
- Tip: Diversify by investing in stocks, bonds, and short-term investments.
| Stocks | Bonds | Short-Term Investments (CDs, Money-Market) | |
|---|---|---|---|
| Type of Investment | Aggressive | Medium | Conservative |
| Short-Term Risk | High-Risk | Medium-Risk | Low-Risk |
| Long-Term Growth | Great Potential | Average Potential | Small Potential |
| Additional Benefit | Cushion to Bonds | Cushion to Stocks | Easy Access to Cash |
2) Learn the Lingo - The world of finance is jam-packed with jargon that may leave the financially unaware clueless indefinitely, unless you make the effort to learn the terminology of the market, the banks, and other aspects of the financial sphere.
- Tip: Interest rate swaps - If you are earning variable interest on money you have deposited at your bank, but you are worried that interest rates will drop in the future, you can change your investment to earn a fixed rate of interest. This will protect you from falling interest rates and it is called an interest-rate swap.
Tip: Beneficial interest - If something really belongs to a person, even though they do not legally own it, they have a beneficial interest in it. If, for instance, parents hold an investment on behalf of their child, they are the legal owners but the child is the beneficial owner of the investment.
3) Size up your Psyche - One of the most critical keys is to know what kind of financier you are. This involves knowing how much risk you are willing to take, your time frame for investment, and which investments you are comfortable with.
- Tip: Factors may include proximity to retirement, other life changes drawing near, assets available, and even susceptibility to stress.
4) Know Who can Help - Do-it-yourself personal finance can work well for many people, but some want the expertise and experience of professionals. You can access market knowledge through books, computer programs, or the internet as well as hired help.
- Tip: Check out these great books on investing.
- Becoming An Investor:Building Wealth By Investing In Stocks, Bonds, And Mutual Funds By Peter I. Hupalo
- Capital Gains, Minimal Taxes:The Essential Guide for Investors and Traders By Kaye A. Thomas
- Beyond The Basics: How to Invest Your Money, Now That You Know a Thing or Two By Mary Farrell
Other Resources and Links:
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