Financial literacy-II

Financial literacy-II

 

The most important feature for an investor is nothing but is his own temperament, not the actual intellect.

Yes, you need a real temperament that neither give you over confidence or less confidence during all the seasons of market investing, which is being with the crowd or against it. An independent thinking person with confidence in what you believe is much more important than being the smartest person in the block.

Just like anything else, your best returns come from those who wait for the better opportunities to show itself before making a commitment. Those who chase the current hot stock market usually end up losing more than they gain. Always stay current with the things going around both domestically and internationally, both in the form of current market trend and forthcoming government rules and regulation changes. Remain active in your analysis of sectors and then look for quality companies at discounted prices. Always vigilant and be patiently waiting for them to reach their discounted price before you make a move.

In general, most of us are disciplined, some are more disciplined and some are less than others. We all learn this from childhood. Same kind of discipline is required in financial management. Some learn through observation, some learn through reading, some learn from both. Interestingly the best learn through your own failure, the lesson through the hard way. But as an investor when it comes to your money, earning through your own mistake is often avoided and is not preferred.

When doing the research on stock investing, don’t make a trade until the technical and the fundamentals are right. Research on fundamentals help to find a quality stock (company) and the real technical analysis help you to determine when to make a trade (buy) and same timely technical analysis will help you with your exit point to come out of the investment. With the experience you will be able to understand, the fundamental reason that is driving the stock and technical analysis will confirm the fundamentals, then you make the move to trade either way.

Don’t behave like The Gambler. As an investor, we should always aim to put the odds in our favor with every trade. All of these can be identified through individual stock selection technical or fundamental analysis, sector-based, value based pricing, growth oriented, whatever approach which works best for a particular investor. The real point is that investors must be constantly vigilant and working toward finding and recognizing opportunities as they present themselves. After all,  you have been dealt the right cards, it’s time to take the next move

Money management cannot be put on auto-cruise control or autopilot but it is an ongoing process. The first precept is to minimize the losses on each and every opportunity. Unfortunately, investors do not have any easy way but, investors must work hard to find good opportunities. Once you have a good hand and sound judgment, it is time to decide how much money to commit to the opportunity.

Most important factor is actually knowing you. It means doing everything you can to stick to your own discipline. Everyone is tempted to get on with it to make the next trade, but if that opportunity does not fit within your measure or criteria of a good opportunity, then you must force yourself to let it pass. It is possible that while you will miss some good gains, this will also save you from some hefty losses as well. There is nothing wrong in following your discipline is essential for success as a small gambler as well as an investor. You must be extraordinarily patient in your pursuit of the right opportunities and then aggressively go after the better ones.

Financial literacy-I

Financial literacy – I

 

You enjoy the financial health outcome based on your financial behavior and financial literacy. Many times we have financial knowledge but there is an always going to be a gap if we are not going to behave according to our knowledge. Financial health is a result of sound decisions, planning, financial emotion, greed, abilities to handle both good and bad outcome, constant learning.

There is an element of ethics in personal responsibility. Your own ability to handle financial shocks from a setback. Your own ability to take a calculated risk. Planning for everything is not possible but setting the right priorities and setting the goals accordingly is more important.

  • Spend less than you make/earn.

Everyone want to buy all the luxurious things but not everyone can afford them all. Hence knowing our capacity first before we start spending the money is important. Wisely spending the money based on the priority and the need is a key to spending the money. Hence it becomes the foundation of financial health. Just forget about coming out of financial debt, if your expenses exceed the income and eat up everything you have.

  • Save reasonably good for your emergency fund.

Having really decent emergency fund is another important factor of finances.  But a definition of so-called decent varies according to your situation. Having 6-9 months of funds saved for living expenses which are set aside is a great idea. Saving money is most important and critical part of your life and developing the habit of saving more earlier in the life will pay you big later on.

  • Pay your debt and bills on time.

Not paying the loan installment, utility bills can further dent your savings. Not paying the credit bill on time can in occur various fees and can increase the interest rate on the debt.

  • Staying on track of your goals for retirement.

Many people have a plan but staying on track for your retirement savings plan is more important than anything. Setting aside money regularly based on your current circumstances and type of retirement life you want to live. All these can start when you start earning in your twenties and earlier you can start is better.

  • Avoid very high-interest debt/loan.

Good money management habits will get you lower interest rate when you need it for your car loans, home loans etc. Not managing the money right can create an extra burden on you in the form of higher than the normal interest rate on your future loans.

  • Keep your debt in control to keep you sustainable.

Keeping your home loan mortgage payment not more than 28% of your before-tax income and all the debt payments including the home loans installments should not increase more than 36%  of your income is advisable. Another benchmark is the 50/30/20 rule of a budget. Which says to keep your required payments of home loan and other must have expenditure (food, utilities, insurance, kids care etc) under 50%  of your after tax income. Then you’re left with 30% for your other wants and remaining 20 % for other debt repayment and savings. When you start experiencing that when your debt keeps you up in the night is the time you need to have serious re-look at your finance management.

  • Keep your good debt in good condition

Your home loans and student loans are one of the good debts. Home loan provides shelter to your family and at the same time value of your home increases. Similarly, student loan, help you get a good education and good education help you earn good money later on. Pay both the loans on time.