Stabilize current finances before investing

In these times of financial instability it is important that you take a look at your income and expenditures. Preferably make a budget so that you know your incomings and outgoings. If you are to invest, do it wisely and for the length of time that you can afford. The stock market for example isn`t a market for short term investment unless you can afford to lose the invested money. Alas, it is vital to stabilize the current finances before lengthy investments as I have explained in the following article of mine;

Stabilize current finances before investing

More often than not, an investment is a long-term commitment. The whole idea of investing is that you save money for the future so that you spread your income over time. If you have a windfall, if you earning potential increased for a period or if your spending decreased, then you might want to spread this extra money over a length of time rather than go on a shopping spree. As you invest you expect to get paid for that investment as you need the value to increase, not least because of inflation. The day you realize the investment you want to have the same buying power as you would have the day you made the investment, and preferably more.

The banks, the governments and the financial institutions all recognize this and pay you an interest rate as compensation. As they want you to commit to a long-term investment they pay you more the longer the term you commit to. When the investment involves risk you are advised that this is a long-term investment and that during periods the market might be in a downward spiral and you won`t afford to cash out the investment at that time. Due to the nature of the investment and the risk that comes with most high paying investment options you should only invest when you have enough money to cover you current expenditures plus as smaller current saving if you unexpectedly need a lump sum. In order to know if your finances are healthy enough to make a long-term investment you need to set up a budget.

You need to be aware of you income and expenses. When you know that you earn more than you spend and that you are positive that status quo will continue, then you can start looking at investment options. However, if you pay your current expenditure through credit cards you should think twice about starting a long-term saving. The interest rates that you have to pay on a credit card way out-ways the rates that you will come to earn for you investment. In a case when you don`t have a very volatile and risky investment. So, in order to invest, your short-term debt should be paid off. A long-term investment should be done with money that you can do without for the next 5 to 10 years. If you believe you are going to need the money to pay off some debt within 5 years, then you better just start saving in a current savings account. That way you can access the funds when needed and you avoid all the fees that the financial institutions are going to charge you if you need to terminate an investment before maturity. If you don`t have enough money to pay your day to day expenses, then you don`t have money to cover a long-term saving.