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Let’s not beat around the bush, 2020 has been a challenging year for most of us. In times like these, it becomes imperative to be smart with the resources we attain, specifically, money. Here are a few habits that one can inhibit to become progressively smarter with cash this year.
Don’t start investing
The first step in your investment journey is not to invest at all. Surprising? Perhaps, but there is something critical you need to address before you focus on growth. Uncertainly, life happens, and you don’t want your investment decisions being driven by necessity. Having a pot of savings to cover your fixed expenses for 3-6 months ensures that you can take advantage of shifts in the market, rather than the market taking advantage of you.
We’re in real estate, lay a foundation before you build a home.
Conceptualize a long-term time frame
Most people invest either for the future, to progressively build their wealth, or because they are in their retirement age with no other source of income.
Warning: Investing is not a “get-rich-quick” scheme. Building a resilient investment portfolio for the future takes time, effort, and discipline.
Always keep in mind why you are investing. Making impulsive decisions focusing on the short term is the best way to self-sabotage your future goals.
Create a system customized to your earning
The saving bucket should be kept for emergencies unless you have the opportunity to spend it on something that will significantly improve the quality of your life. The capital generated from investing can be saved and pooled in towards other investments to grow your investment portfolio and increase wealth. No one teaches us to be smart with our money, we just kind of learn it, the hard way.
As with anything in life, consistency is key. Especially with regards to investment plans or saving plans, it is quite challenging to remain steady and not fall into the temptation of making an impulsive spend here and there. It is essential to understand that capital you earn today is not only for your day to day necessities, but it is something you will need to support you in the future when you don’t have a regular salary.
According to Investopedia (2020), “cashflow is the net amount of cash and cash-equivalents that go in and out of an account.” In this case, investing cash flow and free cash flow are important terminologies to understand.
Investing cashflow: includes all purchases of capital assets and investments in other business ventures.
Free cashflow: used to assess profitability and cash that is generated after calculating the expense of maintaining assets.
There are two main ways to produce cash flow when it comes to investments:
- Buying low and selling high
- Collecting dividends from investments
Traditionally, the companies/businesses that you have invested in will provide you with dividends from the profits that they have made in that term. However, when you invest in companies, you are investing in something intangible as it is a share of a company.
It is typical for us as humans to make more impulsive decisions on things we cannot see, which is why tangible assets become more important to protect us. These are assets such as real estate and precious metals, something you can see, hold, touch, experience, and possibly have an attachment to. With real estate, it can be purchased, rented out – and based on the pattern of rent payment, you will be provided with the funds, which is one of the ideal ways of producing cash flow.
Have realistic expectations
I will be reiterating this point because it is one of the most important lessons that you can get out of this blog. The investment market is not a game, while anyone can have a stroke of luck and experience massive gains; luck by definition is not sustainable. On TV shows, you often hear someone ask, “what would you do if you won a million dollars?” the answer is never to save and invest it, even though – saving and investing is probably the most sensible option for them.
The real test is to persevere through temptations while investing in yourself so that you and your family are taken care of now and in the future. Being a realist when it comes to investing and maintaining discipline, can help you cultivate the fruit towards long term financial freedom. In conclusion, be smart with your money!
As Muhammad Ali said, “‘Don’t quit. Suffer now and live the rest of your life as a champion.’