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Managing Your Financial Life | Print this Article |
Over time, I've learned that the best way to manage my money and financial health is to be aware of the risk /return ratio. Everyone wants to maximize their returns yet many forget that by doing so, you may be taking a lot more risk than you are comfortable with.
By managing our risks, we are better equipped with addressing unpredictable scenarios that can wreak havoc with our finances. Risk isn't a bad thing, just as long as it's controlled or "calculated". Knowing your risk tolerance is a must when investing your resources for gain. Let's discuss a few strategies that will help keep our risk in check.
1. Know yourself
To know yourself well is the basis of many a financial lesson. With every mistake I've made I've tried to learn from that experience and if bad…not repeat it. Muscle Memory! Understanding your risk profile and capitalizing on your strengths can increase your chances of success.
2. Keep your skills up to date
At work, it's not a good idea to become too complacent, especially when you work in a competitive environment. Develop skills and keep them honed in order to stay valuable in your field. Develop aspects of your life that will allow you to stay flexible and self-sufficient in case work suddenly changes thru no fault of your own.
3. Carry the right amount of insurance
Have you got the right amount of insurance? Many people take the risk of not having enough coverage whether it be life, Home or auto. Sometimes there's not enough in the budget to cover premiums. But if you can afford it, make sure to keep policies up to date and sufficient for your circumstances. I have seen families financially wiped out due to lack of coverage.
4. Diversify your income sources
When I read about the financial troubles of different industries it emphasizes to me the importance of developing multiple streams of income if possible. Invest early to allow your money to start working for you. Think of your money as yet another income generator for your household. Create new income sources by turning a hobby into a small business or getting a part-time job?
5. Build an emergency fund
Know that emergencies can happen and one should have 6-9 months of expenses in a liquid account. This can be a game changer if something happens!
6. Check the financial ratings of institutions you work with
After witnessing the downfall of many a financial company in 2008, I've realized how important it is to review the financial ratings of our banks and institutions. I keep regular tabs on my mutual funds and online bank accounts, along with the companies that house them.
7. Keep your savings under FDIC limits
If this is an issue for you then you have more money than I think you do and need to look at other avenues of investing. Basically, If anything happens to your bank, remember that your money is only guaranteed up to certain FDIC limits. Make sure you diversify your funds across several savings institutions and how the asset/ account is titled. Single and joint accounts, trusts,etc…
8. Own stocks & Mutual Funds
Owning stocks is one way to fight inflation risk. The best way to beat inflation is to own equities and invest for the long term. Work with reputable mutual fund companies, strong banks and good financial advisors as you manage your equity portfolio.
9. Diversify your investments
When investing in mutual funds, take a risk tolerance test to determine your tolerance to investing. This will help you determine your equities to bonds or fixed investments ratio and is the best way to balance overall portfolio risk and return based on knowing yourself and how you feel about the market.
10. Don't time the market
Short-term or day trading hasn't worked well for me, and I doubt that it's worked for most people. You really need to know what you're doing if you're going to participate in this activity.
11. Limit debt and use credit wisely
I do own one credit card which I pay off in full each month if I use it. And yes I use it for the rewards I get. If you have control over your spending (and only if you do), then using cash back credit cards is one way to leverage the use of credit to gain something extra for the spending you already do. But be aware that credit is a tool that shouldn't be abused.
12. Watch out for schemes that sound too good to be true
Avoid get rich quick schemes and yes it's easier said than done. If it sounds too good to be true…it probably is…When in doubt…research it before you do it.
13. Don't burn your bridges
As the saying goes: "it's not just what you know, but whom you know". A good reputation and a social and professional network can go a long way with providing a safety net, especially when times are tough.
14. Stay healthy
The most common cause of bankruptcy is ill health. Unfortunately, good health is one of those things that we easily take for granted until it's too late. One of my highest priorities is to keep fit and say healthy: I've made and am continuing to make changes in my lifestyle to ensure that I maintain these goals, by cutting down on the stress and improving my diet.
15. Do your due diligence
Research, Research, Research! Whenever you purchase or sign up for anything that requires your money…remember that it's "buyer beware!", so make sure that you perform your due diligence and look over the "fine print".
The bottom line here is that it's best to be prepared. Prepare yourself well for emergencies and the unknown. But there may be times when no matter how well you do things right, you may still find yourself facing money troubles. In that case, hang on and hold on. The better you can anticipate and accept what does happen, the easier it will be for you to ride out the rough spots until your situation improves.