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A Financial Plan- Borrow, Invest and create

 

We earn material wealth to provide ourselves and our family a decent style of living. It is a goal we all strive towards, and never seem to actually get to. There is always something more that can be done to solidify our financial security. Options are aplenty for us to juggle between to make it happen. At the root of it all, it boils down to saving, investing and taking loans. Now, how, when and where we do it is a whole other subject in itself. To amass a sizeable investment and blindly throw it at a roulette table is obviously a bad move. It takes careful planning, timing, knowledge, and experience to optimize your ROI (return on investment). That is, we want to profit as much as possible on our investment with as little risk as possible. Once we figure out our objective we can get a much clearer picture and choices will become easier. We will discuss in detail the principles on which you should base your financial planning.

  1. The purpose, or why?

As mentioned in the introduction the purpose or purposes for you investing should be clearly defined. Are you saving for your retirement, or to open a business? Using this simple comparison, we quickly realize that these variables require completely different approaches. While one will require making a retirement income plan, the other might benefit greatly from taking a startup loan. Different types of plans will project different methods for managing future assets and liabilities. A time-frame is also a key component in financial planning. It will define whether you are in for a short, mid or long-term type of investment.

  1. The means, or how much?

In order to start investing in anything, you need to have a starting point. These usually appear in some form of a saving. Plenty of investment choices have a loosely determined minimum amount. Do you currently have a single, large sum of resources or do you plan on contributing on a monthly period? The second choice is called dollar-cost-averaging and it will help reduce various market risks. The first one, on the other hand, offers you more choice. A larger sum, should you choose to diversify your investments, will minimize the risks that come with choosing just one. Another important decision you might have to make is how much to invest into bonds versus stock. The common denominator is having a certain amount of resources available for you to invest until it starts to pay dividends.

  1. Risk management

Investments of any kind carry with them a certain risk of falling through. It is always possible to lose a portion or even the entirety of the funds you have put in. One of the ways to prevent this from happening is to diversify. For instance, we could simplify by talking stocks. If you were to buy stocks from several different enterprises, the investment is spread across horizontally. This way if one of the companies you invested in goes under, the rest are safe. Simply put, it is never a good idea to put all your eggs in one basket. Sure, the total value might not be as high as investing in a single high-yield investment, but it is safe. It is very rare to find a low risk- high return situation. But it is our job and responsibility to find investments with the golden ratio between the two. A more sustainable model is always to aim for moderate returns over time rather than shooting for the sky. Taking multiple smaller risks trumps taking a few huge ones. But if you do want to swing for the fences, make sure it is something that you can afford to lose.

  1. Loans

In today’s day and age, it is a common occurrence to take out a bank loan. It can be just what you need to jumpstart an idea that you have. But on the other hand, it is a move that should not be taken lightly and without prior consideration. Loans can have great financial implication on your current and future finances. Borrowing finances mean eventually paying the principal amount, along with interest and various pre-determined operating fees. Do not borrow more than the amount you know you can repay in due time. Ideally, your loan to income ratio should not exceed 50%. EMI and loan eligibility are readily available online and are free. If all of this seems too complicated to tackle single-handedly, you can try one of the many all-in-one solutions. Many of these are also online and will give you instant feedback without waiting for assessment. These systems such as for example the peer to peer lending in Australia will handle your investment professional. This way your investment will be in a much smaller risk of falling through and will be handled optimally.

  1. ROI generators

It is always advisable to keep an emergency fund in a high-yielding savings account. That should be your base, something you can always fall back to. But apart from that, make sure your other savings are not being kept idle. Make your money grow by working for you passively. A passive income is generating value with you putting in minimal or no active time or effort. Simple savings with interest will not be enough in the long run to cover all of your expenses. Real-estate is a prime example of a good investment. It can provide a steady flow of income, with next to nothing in terms of maintenance. And if worst comes to past, it can be liquidated for basically the same price it was acquired.

It is important to say that investing and saving is not a one-time ordeal. It is a lifestyle and a continuous process. To keep increasing the value of our hard-earned investment, be diligent in maintaining it. The most common mistake is to feel comfortable and to sit on your laurels while your assets decrease in value. These financial tenets shall not change or become irrelevant in any foreseeable future. So go ahead and use them to create a certain future for you and your loved ones.

 

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Written by Emily Wilson

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