Investing is important if you want to be financially free. It allows your money to work for you, instead of you working for money. However, it is essential for you to know how investments in business work and how you will profit from it.
The amount that you will earn in the future and how your investment works actually depend on your capacity to make sensible and good decisions. That is why aside from money, it is significant to develop your investing skills. It will help you choose the best investments that will suit you.
It is inevitable that you will commit mistakes, but some mistakes are actually avoidable. So it is better to be aware them so that you won’t experience the misfortune of suffering from their disastrous effects.
INVESTING WITHOUT EMERGENCY FUND
Before you expose yourself in any kind of investment risk, you have to have a backup. It is the emergency fund which is equivalent to the six months’ worth of your salary. This money, as the name implies, is for emergency purposes.
You can’t think of putting all your money in a business or investment without anything left in your savings. In case of an emergency, where will you get the money? Would you want to disrupt your investments or business due to an unexpected event? That would be unwise!
We’ve heard about stories of people who had to sell their properties because of an emergency. These are tragic indeed because they were not ready to face the situation. If they had only built an emergency fund, they wouldn’t have had to resort to selling their assets.
So if you want to be prudent about it, reserve some funds for emergencies. You should make sure this money is readily available when needed. Do not put it in an investment fund which can take several days if you want to take your money back. The best place is your savings account or a money market mutual fund. Both of these are highly liquid.
INVESTING WITHOUT A CLEAR OBJECTIVE
When we think of investment, the first thing that pops out of our mind is the profit. How much money will we earn from the business? Hence, we disregard our objectives. It is important to know your purpose in investing because it will be your driving force to reach your goal. Your objective will lead the path to success.
You should also make sure you are investing in something you care about. This can help you to aggressively give it your all even if faced with seemingly insurmountable difficulties. Your purpose is your guiding light that can lead you to profitability. It will give you the boost that you need to keep going until you reach your goals. Better not invest until you have your purpose established.
INVESTING WITHOUT KNOWLEDGE OF WHERE TO INVEST
Once you decide to invest, you have to know which investments are appropriate. Some people fail in business because they invest just for the sake of investing. Without proper knowledge about the industry that they will enter, the target market, capital formation, the business potential and other necessary information.
It is essential to know all the details. You can do research or seek advice from someone who is knowledgeable about the business or investment you’re thinking of pursuing. Investing in a business is like going into battle, you should have all your gear with you. If you forget something, you will feel it as you face the inevitable problems along the way.
All these mistakes are avoidable. And you have to do everything you can to resolve them if you want your investing venture to be a success. It will not guarantee that your path will be easy but the odds will be greater in your favor. Happy investing!
This article is a guest post by Joel Olave, an engineer and blogger based in the Philippines. He is formerly a life insurance agent and writes about personal finance in his blog – Invest in Your Future
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