So, you want to invest your money and increase your net worth. While investing your money is key to growing your income, you should be certain that you’re financially prepared for any investment.
Ask yourself the following questions before investing your money in anything.
- How does it fit into my goals?
Consider what exactly it is you’re trying to accomplish to determine how this specific investment fits into your overall financial goals. The investment vehicle will be different for each goal.
For example, you’re trying to save enough for a down payment on a home versus if you’re trying to build your retirement fund. Figuring out how an investment fits into your goals will help you answer the next questions.
- Am I in debt?
Before you start considering investments, it’s important to consider your standing debts such as an auto, home carefully, or personal loan you’re still paying for or any credit card debt.
Will they be manageable enough when you invest a huge chunk of your money?
- What is my risk tolerance?
There are investment vehicles and types of insurance for different levels of risk tolerance. To invest in the right type, you need to ask yourself what your risk tolerance is.
Does the prospect of losing some or all of your money sit well with you? If your objective is to make as much money as possible, then you may need to have a higher risk tolerance.
- What happens if I lose my money on this investment?
Once you’ve assessed your risk tolerance, you should now consider the scenario of losing your money on investment you made. There is a very real possibility of losing your money on any investment. Remember, there’s no such thing as a risk-free investment.
For example, the returns you will get from investing in stocks, bonds, and mutual funds will always depend on market inflation, interest rates, currency fluctuation, and other variables.
What will happen to you and your family if your investment goes to zero? If you will become financially devastated and don’t have an emergency fund, then don’t make that investment.
- How long can I handle having this money inaccessible?
When you invest your money, that amount will not be liquid for a certain amount of time. If, for instance, your child will be going off to college in five years, and you think you’ll be needing that money, then make sure that you can liquidate in five years.
In general, the longer you’re willing to invest your money, the higher your earnings from it. But, if you’re in it on a short-term basis, then you may want to consider more liquid investments such as stocks and bonds.
- What do I know about this investment?
Often, new information about a specific investment guide or type of insurance comes our way. Sometimes, we get tempted to invest in the same thing as our friend or neighbor after hearing how much money they earned. But, what do you really know about it?
Make sure you understand what you’re getting yourself into before signing that dotted line. Do your own research and don’t be afraid to ask.
- How do I get out of it?
Sometimes, unexpected events or disasters occur and prompt you to liquidate or get out of an investment. Whether you have an emergency fund or insurance that you can rely on, it’s important to know how easily you can get out of an investment.
For instance, the economy or market is becoming unstable, and you feel that your investment will go haywire soon enough. It could also be that you’ve found a better investment vehicle. Can you liquidate and pull out your money?
An investment guide will allow you to decide on the right vehicle that will help you reach your financial goals. But, make sure that you ask yourself these questions before making that zeroing in on any investment.