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When people work hard and are relatively careful with how they spend their money, they will usually end up with a decent sum of money in the bank. Saving up money over the years isn’t that big of a problem, it just requires a little patience and enough willpower to resist the temptation to blow all your money on shiny things. That is actually the most important thing to remember – you need to resist the temptation to “buy right now!” and think things through before committing a large portion of your hard earned money. The same applies to investments. People often feel compelled to invest their savings, seeing that as the only viable option, so they often make poor choices or simply fail to think ahead.
Before settling on a particular investment plan, you need to make sure that your budget can support it in the long run and that means that your personal finance is airtight. The level of the investment and its feasibility will be determined by various factors. Here is a quick list of things to take into account for a good reality check before making major financial decisions.
You need to be aware of just how far your income will take you in terms of funding a project. Let’s say you are buying some investment property, an old house in a good neighborhood for instance, with the intent to renovate, put in some bells and whistles and sell for a good price. Or it can be a classic muscle car that you want to bring back to life and sell to an enthusiast for a quick buck. Well the first thing is estimating (as closely as possible) the total funds that you will need for the project and factor in some additional, unforeseen expenses. That way you will lower the chance of going over budget.
Secondly, you need to make a realistic evaluation of just how much of your income you can afford to allocate to the project. This means you still have enough left over to live comfortably while the project is underway. As for investing your savings, you need to know how much time it will realistically take before you will see any returns from your investment. You will be short on additional cash not only until the completion of the project, but until it has earned you enough money to cover the expenses, only then will you be making money. Last of all, you need to make sure that the investment won’t put you in too big of a hole for an extended period of time, especially if you are considering getting a loan to provide additional funding for the investment.
While we are on the subject of debt, you need to consider putting a part of the money you have in the bank towards repaying your debt. If you think that the investment is a sound one, with a low to moderate risk rate you will feel it justifies using up your funds to invest. The logic here being that once you make even more money it will be a lot easier to part with a big chunk of it and repay your debts. The best advice anyone can give you is to play it safe and limit your investment, so that there will be some money left on your account. If you are thinking of getting a loan from the bank for the specific purpose of funding your little investment, sit down at the computer and do some calculations first. Many of the issues outlined in the section on evaluating income will arise here as well. You will need to allocate a certain amount of your monthly earnings towards additional expenses that pop up, as well as towards repaying the debt at a steady rate.
All major investments can be a drain on your funds if you are not careful, and many supposedly savvy investors have dug themselves into holes so deep that they couldn’t get out. It is best to make smaller investments at first if you don’t have a lot of funds available, than to put all your eggs into one basket and risk bankruptcy. You need to walk the line, taking into account the costs of everyday life, things like car insurance, a retirement fund and paying off debts. Don’t bite of more than you can chew.
Damian is a blogger and marketing consultant for simplehomeinvest.com.au. He mostly writes about business and finance. Damian is also a social media and online traffic expert.
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