Spend Below Your Means; Invest Within Your Means

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source: http://www.mint.com

You might be spending below your means but such is not enough to fully achieve debt-free and financially free status.

The other half that you should focus on once you have mastered your spending is knowing how much to invest. Investing is something that is not equated to having your own business or running your own online store. Investing is making your hard earn money work for you. Investments should be the source of your passive income.

If that is the case the solution then is to have lots of money and invest it? This is so easy to those big honchos and born with a silver or golden spoon but such is not impossible to us salaried and savers.

A lot of people have this mistake of investing all their cash to stock, loan, or some investment company but eventually lost a lot because the stock market is bearish for the longest time and was forced to sell at  a loss, the borrower became bankrupt and can't pay a single penny or worst run away with your money, and the worst is investing in a scam.

  

That is why you should only be investing within your means. Always remember the rule of only investing free cash.

Here is what you should do with the limited cash in order to put up a considerable fund as an investment.

1. Set aside a regular free cash every payday

2. Check investment vehicles, learn the ins and outs first, 

    and list down the best

3. Time is your ally

4. Invest when  such investment is down, sell at profit

5. Set aside a big portion of your profits for re-investing.

 

SET ASIDE REGULAR FREE CASH EVERY PAYDAY

I have been telling and advising this for the longest time. In order for small funds to accumulate you have to do two things: set aside a fixed amount and at a regular interval. Always set this aside first before spending your paycheck. Its like dividing your cash and this gets its share first.

Others term this paying yourself first. This concept means setting aside to your personal investment fund first before paying your debts and spending for your wants. This also not only applies to your paycheck but also to any free cash that passes your hands.

CHECK INVESTMENT VEHICLES, LEARN THE INS AND OUTS FIRST, AND LIST DOWN THE BEST

After sometime you might have set aside a considerable sum of money and you finally decided to invest. You heard of this investment saying it guaranties a 12% per month return and you immediately put your money in. At first they pay what they promise until the time comes that they are delayed until one day you learn in the news that the company foiled up and its owners run away with your money. 

Checking and learning about the investment is a wiser idea than just jumping into a popularized investment scam. Also there is lots of good investment out there thus you got to make your list. Having this list will help you a lot in your investment picking. Sort them out based on how safe, how much return, and how much outlay is needed.

TIME IS YOUR ALLY

Time works both ways. At times opportunity comes and you got to seize it; other times patience is really needed.

There are investment out there that comes once in a while. This is the very reason why you should always have a ready set aside free cash to buy such investments. On the other side there are investments that will take longer to materialize. Real property like land don't go up in  a day or a week at most it will take years before its price appreciates. Stocks of new and promising company will take time before their prices rise, they got to prove to the public their capability to generate returns.

INVEST WHEN SUCH INVESTMENT IS DOWN, SELL AT PROFIT

As always follow the simple rule of "buy low, sell high." But lets look at this just like what Robert Kiyosaki of Rich Dad, Poor Dad said: Buy to earn.

That is why time is your ally. Be always on the look out when prices go down. There are signs when such is already happening. Also always set your target. Investing without might lead you to endless expectations that disappoint. Once your investment its target make profits don't wait and don't regret selling it you might not know when will such profit level can be achieve again.

SET ASIDE A BIG PORTION OF YOUR PROFITS FOR RE-INVESTING

This is where many falters. After making a big profit they are happy and party and end up spending what they have earned. One should re-invest on top of the original  investment profits that you make.

But it does not necessarily mean all the profits, of course you need to celebrate your victory. Of the profits re-invest about 50-70% and the 30% for your personal wants. But  would it be greater if you share your profits? Why not share a part of that 30% to those who are less fortunate? I bet you will find more joy in that rather than spending it all in your unlimited wants.

Investing Word of the Day: Return

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source: http://www.tobysterling.net

We talked about inflation, that "thing" that eats up the value of your money, and how can it really affect your financial capability. That is why we invest in order to combat it. There are so many ways to fight it and eventually outrun it so that you can relax and sit back.

One important word you have to understand is the word RETURN.

RETURN is what you get from your investment over a period of time. Knowing this, how can we use this to fight inflation?

source: http://moneylifeblood.blogspot.com

In my beloved girlfriend's, Kris Diane Domingo, blog moneylifeblood she mentioned a concept about return in our small business back in her home in San Mateo. We opened a "sari-sari" store and some of her points really explained the usefulness of knowing your return. 

Return can be computed by expressing it in terms of a percentage. With that we can now compare it with the rate of inflation thereby we have a barometer to check if we are really making it, beating inflation, or just making it eat more the value of our money. As my Krissy mentioned, selling cheap seems like losing because we only get a small return but if we get that small return many times or faster it would be better than waiting for the return on a longer time period. Just like Chinese merchants they may be selling at cheap or near cost prices but the secret to it is to earn that amount faster thereby increasing the rate of return.

So for us in the stock trade it would be foolish to keep putting all money in a long term but we should allocate our funds to both long term and short term investments to fight inflation. We can continue accumulating shares of blue chips in small portions while earning more buying stocks for short term investments and re-investing the returns either to accumulate more of blue chips or expand our portfolio of stocks that gives good returns at a shorter period of time.

The faster you get your return on your investment the earlier you could sit back and enjoy your blessings with your loved ones and to all the people you really care for. So invest in different investment vehicles that give returns faster to fight inflation; know your rate of return.

Now how do you compute your rate of return? Simply divide your net profit by the cost of your investment. 

Rate of Return = Profit/Cost 

or to extend the equation

Rate of Return = (Earnings-Cost)/Cost

This will be your starting point. 

If your Rate of Return is negative or it is not even above the inflation rate you could do three things to improve it.

• Increase your Earnings and maintain your cost
• Decrease your cost and maintain your earnings
• Or do both: Increase earnings and Decrease Cost

It may be impossible at the beginning but with all the free resources out there we can fight inflation. 

Know your Rate of Return. 

Weakening the weak

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source: www.money.cnn.com

If you are reading The Millionaire Next Door by Thomas Stanley and William Danko(I am in the last few pages) this phrase might be familiar to you.

http://www.fotosearch.com

The chapter that brought out this phrase is about outpatient care of adult children of the affluent. Back in the Philippines if one is born rich or with a silver spoon we say they are lucky. The fact is there are a few lucky born rich kids who are able to stand on their own. Most would likely be under the roof of their parents even after they finish graduate school. 

Weakening the weak means instead of strengthening somebody by helping out by way of shouldering their first rental by the time they live on their own or continually giving money even if they already have their own family they instead grow dependent on that support which they expect to come. It is like your mother giving you money even if you are already working thus it creates that thinking of yours that it is okay to not save up because financial help is always accessible.

Bible Quotes of the day: The importance of information

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Through wisdom a house is built, and by understanding it is established; and by knowledge the rooms shall be filled with all precious and pleasant riches. 

Proverbs 24:3-4

That is why it is important to do due diligence before investing in a stock. Don't just buy because it is a hot tip or it is the talk of the town. A stock's sudden price rise may be due to speculation and if you are caught up or what my stocker friends term as "ipit" then you might get burn and lose a lot.

I recall the SEC's propaganda in the past.... INVEST...... INVESTIGATE

PSE Website Part 8: Knowing who manages the companies that you invested

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 source: http://www.cmu.edu/
In business it is important that you trust the persons that manage the company. Their educational and professional background maybe impressive but if investors don't trust them it will be hard to see growth due to lack of investor confidence. 

One good example is Steve Jobs of Apple. Jobs was the primary innovator at Apple yet when his attitude turns from good to bad the company started to fall and eventually led to his expulsion to the top post. He learned his lessons and was able to get the trust of the people inside Apple and eventually the investing public. Since then Apple lunch one of the greatest gadget, The iPhone and has been a key player in technological innovations.

To see the managing team of your stock's company you can check them by going to the  the Board of Directors and Management link in the Corporate Information link:

Note: the use of ABS Corporate information is for illustration purposes only.