“The 3 things to consider before Investing Money”
In my previous article, I talked about Step1: Making Money, and Step 2: Managing Money. If you haven’t read that article yet, please read part 11 of the series and sign up for the Wealthplan so I can email you that and the previous articles in the proper order from the very beginning.
In this article, I complete the Wealth-Flow Blue Print Step 3: Investing Money. Here’s the diagram again for easy reference.
Step 3: Investing Money:
Why do I need to invest in the first place?
Because we are not getting any younger. And when you get older, you will not be able to work as hard as you used to. When that time comes you must have a means to have money still flowing in to enjoy your days without having to worry about money, and without needing to work so hard anymore. That is the purpose of investing.
What is investing?
Investing is basically buying an ‘Asset’ with your money. And an asset can be anything that produces more money for you immediately (Short term) or after a while (Long term). Now although an ‘Asset’ can be a business like a restaurant, a retail shop, etc. in my view they are different from Investments. Investing for me is being able to make money without customers or staff, the 2 critical ingredients in any business. My definition of Investing is being able to make money with 2 different ingredients: money and experience. For more details on this, search this blog for the article “The difference between Businesses and Investments”
Now before Investing in anything, I would recommend that you are already doing a good job with Making Money and Managing Money (Steps1&2 of the Wealth-Flow blue print). If you are still struggling with the first 2 steps, then you may want to hold off Investing first.
Why you ask? Because investing money requires 2 critical things: 1.) Money that you can afford to lose (Risk Capital) and 2.) Investing Experience. Every successful investor starts with zero experience, which means when you start investing, you will make mistakes, mistakes that will cost you money. In exchange for these mistakes, you will gain experience and to gain experience, you will need a steady source of income and a practical head to manage the losses.
Now, investing is not all about losing money, of course the objective of investing is to make money, however, and remember this — an amateur investor will look at potential profits and will not immediately understand and appreciate the risks involved in investing. Many times, people who work hard and sacrifice a lot to save some money put majority if not all of it into an ‘Investment’ only to get completely wiped out. So my goal for you is to avoid this catastrophe by asking simple but critical questions that I use myself
The 3 things to consider before investing money:
1. “Can I afford to lose the money if the investment does not work?”
This is the first and foremost question that you have to answer. If the answer is ‘Yes’ then move to the next question, but if the answer is ‘No’ then simply move on to another possible investment altogether.
2. “Do you understand what you are getting into?”
Now the second thing to think about before you get into an investment is if you understand how the ‘Investment’ will make money for you. Warren Buffet, considered to be one of the greatest investors of our time, says it very simply, “don’t invest in anything you don’t understand”. This is the reason why even though he is a very close friend to Bill Gates, he (Warren) has not invested a single cent in Microsoft. The reason? He doesn’t understand the business well enough.
3. “How long will the Investment take to produce a result one way or another?”
The third and final thing to consider before investing is the time it will take for you to make or lose money. Not a lot of people realize that ‘time’ is critical in any investment that you make. Lets say for example, you invested in something that will give you a 150% return in 10 years. Would that be a good investment? You are probably calculating in your head right now that that would translate to 15% per year which is not so bad considering the bank will give you a lot less than that right? You see, you just missed the critical element of the investment proposal. A lot of people would do the same thing you just did, look first at the potential return of 150% what is important in any Investment is the speed of the result, in this case 10 years.
Is it possible that after 10 years, you do not get the 150% return? Yes.
Is it possible that after 10 years, your investment could be gone? Yes.
If and when that happens, what did you lose? Not just money, but also 10 years of your life that you will never get back.
So before entering into any ‘Investment’ remember what I shared in this article, answer the 3 questions above and you will gain your experience faster and lose less money in the process.
Do leave a comment, I would love to hear from you!
Mark So is a fervent businessman, Investor and educator. He is the Chairman and CEO of Businessmaker Academy—a business, finance and corporate training center. He is the founder and Chief Forex Trainer of Forex Club Asia, A Trading club of Forex Traders across Asia. He is also the Founder and Chief Trainer of the Philippine Franchise Institute which specializes in training and growing existing Franchise businesses. Mark, together with his loving wife also created wealthflowproject.com a website dedicated to teaching people how to make money run after you. A sought after speaker for business, investing, You may email your comments and questions to: email@example.com or call the office at 6874445 / 6873416 / 6874645 for a schedule of his seminars