Are you ready to take your finances to the next level and invest your money? Fantastic! Investing is the best way to build your nest egg and beat the insatiable inflation monster. But before you get started with investing, there are a few things to take care of first…
Have you ever heard of shiny object syndrome?
The phrase can be used in many ways, but for me it’s how easily I can be distracted by new tools and ideas that promise to improve my life.
An app that will help me improve my budget? I must try it immediately- even though doing my budget on paper has always worked better for me.
A way to overcome a negative financial mindset? That must be my solution – even though I know every solution requires more work than a quick change.
You get the idea. Even though every “shiny object” proves to be interesting but never the be-all/end-all solution I expect, I fill with renewed hope every time. And hope is good! But throwing all your eggs into a new basket is not so good.
In order to prevent shiny object syndrome from taking me off track in my finances, I’ve learned to create a framework to filter the idea through. That framework enables me to closely examine the new idea or tool. It slows me down and helps me build good ideas into my plan without replacing the parts of my plan that have been working well.
Everyone should have a framework through which to make their best financial decisions. Here’s how you can make your own.
The other day, my husband asked me if he could take some money out of our savings to put into a new investment account he wanted to try. The investment is riskier than a mutual fund, but it has a known maximum loss so we could mitigate that risk.
My first response was one of fear.
“I’m not sure. How much could we potentially lose?”
His answer was one I could live with. There was no good reason not to try it.
I knew that was why we had money in that particular savings account. And I knew that just letting it sit there without investing it would mean a depletion of value over time due to inflation.
But I was scared.
How do you invest savings for short-term, medium-term, and long-term goals? There are almost as many different answers to that question as there are definitions of these terms. But are we even starting with the right question?
At its core, the question of how to invest over different lengths of time is really a question of whether to invest your savings in securities like stocks and bonds or deposit it at a bank or credit union. Knowing when you would likely sell those securities or withdraw your cash deposits is only a piece of the puzzle. You also want to consider what risks are involved over that period of time and whether they can be sufficiently managed.
It’s really easy to look at the stock market and think you might get lost in the matrix. To the untrained eye, it can look like a sea of numbers and values and ever-changing data that only the most learned experts can understand. So, naturally, those experts know something that most people don’t know, right? Naturally, they must know a way to beat the market and earn returns that spell financial independence. Right?
Most of us know we need to invest our money. Inflation is a sneaky little monster that threatens to shrink our savings as time goes on, and investing is the only way to beat it. The problem is, how can we tell if we’re ready to invest?
The answer that is you’re ready to invest as soon as you’re motivated to invest.
There are so many misconceptions on investing that I’d have to write an encyclopedia to list them all. But one of the most damaging misconceptions is the idea that you need a lot of money to invest for it to be even remotely worth it.
I’m here to tell you, it’s not true.
Any money you invest is money that can potentially grow. And $50 here or there put into an investment is a lot better than $50 spent on dinner and drinks out because you felt like it wasn’t enough to do much else with.
So, on the question of when you should invest, the short and simple answer is always right now.
It’s so simple. Investing, I mean.
Don’t believe me? I don’t blame you.
I’ve been a financial writer for years and have tackled important topics like debt payoff, budgeting, and handling the emotional side of finances. But even with all that, there was one topic I would always avoid: investing. As far as I was concerned, investing was far above my proverbial paygrade.
You see, as a personal banker and someone with debt, I learned a lot about budgeting and saving and paying off debt. But I never got to investing. It seemed too complex, too intimidating. I knew I needed to do it, but figured I’d just be in the Roth IRA only game until or if I could ever learn how to handle the stock market.
I also wanted to make sure I only wrote about topics I confidently could help people with. And since there are people who work for years to get investing right, how could I ever know it well enough to help others? Unfortunately, in my efforts not to steer anyone wrong, I effectively made sure that I never learned a thing about this very important topic.
There’s no sense in talking about budgeting and paying off debt if you don’t also talk about how you can then grow your money. There’s no sense in stuffing your mattress with cash to protect it from stock market fluctuations. And there’s no sense in avoiding a topic because it seems scary. So, I did what I should have done a long time ago: I talked to a professional.
The best thing I learned? Investing is simple. I took pages of notes on how simple it was – because I had so many questions to prove that it wasn’t simple. But when I returned to my notes, guess what? They pointed to how simple investing really is.
It’s all about beating inflation. And anyone can do it.
When seeking out financial advice, we seem to be bombarded by experts and people who call themselves experts saying they know exactly what we should do.
As they dole out their platitudes that pay little consideration to our specific circumstances, we can get overwhelmed with a feeling of there being so much (too much) to focus on…
…I guess I must pay off all my debt using the xyz method while also saving _% of my income while also cutting all my expenses while also contributing to my retirement while also…
The thing is, it’s a lot harder to reach our goals when we have too many to strive for at one time. Focus is the real game changer when it comes to achievement – but it’s not easy to decide what to focus on when everyone’s telling you they know best, but they all have different answers.
That’s why it’s sometimes easier and more productive to think of what not to focus on. Cut the wheat from the chaff and forget about the rest. Here’s how you can determine which financial advice you’re getting is the wheat – and which is the chaff.
Do you ever feel like your financial circumstances are out of your control? Like they’re just happening to you?
Do you always feel like your financial circumstances are happening to you?
Whenever we’re knee deep in circumstances we’re not sure how to resolve, it’s easy to feel like our lives our careening out of our control. Every additional bump in the road makes the situation feel that much more impossible and we’re left nearly paralyzed with fear. It’s in these scenarios that we forget the most important thing:
Even in the most difficult of circumstances, we have control. We have the ability to decide how to move forward – in fact, we have the ability to move forward. But not until we recognize the very important fact that we always have a choice.
Even if the path is hard, even if the path is slow, you can decide what direction to go in. That’s why it’s so important to understand the active role you have in your finances – and the cause and effect of your actions and inactions.
There are a lot of absolutes being thrown around the personal finance world:
Avoid paying off debt so you can put money into investments.
Avoid investing until you can pay off debt.
Don’t worry about retirement until you’re debt-free.
Start saving for retirement yesterday.
And so the list goes.
No matter what financial question you have, there will be at least two experts telling you opposite ways to solve your problem – and both will say that their way is right.
Here’s the thing: there’s no right or wrong way to do things in personal finance. What makes sense for you won’t necessarily make sense for me. Why? Because even if our balance sheets look the same, our circumstances do not. When it comes to taking financial advice, the best thing to do is focus on what makes the most sense for your finances and finding the balance within that.
So, if you really want to have your personal finance questions answered, then what you need to do is seek wisdom and seek balance.