We all want financial security, but many folks never get it. They have the wrong attitude about managing money. The first step to financial security is to sit down and be honest with yourself about how you presently manage money. There are 5 common ways people manage money, and 4 of them lead to financial failure.
Now, take a minute and analyze yourself in terms of money management style. Which of the following 5 categories fits you best?
The SPENDER lives for today, and could also be referred to as a procrastinator.
The SAVER puts money aside, but plays it safe. Investment risk is to be avoided at all cost.
The SPECULATOR takes a “calculated investment risk” in order to hit it big.
The GAMBLER takes a big financial risk on impulse, hoping to hit a home run.
The INVESTOR sets money aside and earmarks it for a specific financial goal. Informed investors know that some money should be invested safely as a cash reserve, available for emergencies or to take advantage of future opportunities. At the same time, the smart investor invests for retirement to get growth, and is willing to accept a moderate level of risk to get it.
If you selected one of the first 4 choices you were probably being honest, but let me give you something to think about. All 4 of these choices are admitting that you go to extremes in managing your money. How so?
Obviously the spender will never get ahead and have financial security, unless it’s done the old-fashioned way … inheritance or winning the lottery. Savers at least make an effort, but they are fooling themselves as well. By clinging to safety and avoiding financial risk they are going to a conservative extreme, and in the process inflation and taxes eat what little interest they earn.
Speculators go to the aggressive extreme and accept significant investment risk. Seldom do they beat the markets … more often they just lose money. In truth, many people who call themselves speculators lack significant investment knowledge and investing experience. In reality, they’re gamblers and go to heavy extremes.
It’s your decision. How do you want to manage your money in the future? The first step to financial security is to make a commitment to yourself that you will be an investor. The second step is to get a bit more specific. Will you be conservative, moderately conservative, moderately aggressive, or aggressive? The third step is to decide whether or not you will work with a financial professional, like a financial planner.
The fourth step is to do your homework. Whether you use a financial planner or go it alone, you need to learn some investment and investing basics.
Do yourself a favor and take that 1st step soon. Make the commitment to be an investor, and then make it happen. Nothing ventured, nothing gained.