In our world today where our desires constantly exceed our resources, we are in a constant battle to do the things we want to. Financial management ensures that we keep up with our obligations while also meeting our financial obligations and demands.
Budgeting, saving and investing are vital tools to achieving financial management, which in turn will enable us gain control of our resources and live a fulfilled life. Budgeting enables us to plan the spending of our money, while saving allows us to create a pool of funds which we can use to achieve our financial goals and obligations. Thus, these two activities combined create the opportunity for us to engage in
Investing is essentially putting some money into a business, project, or other financial activity with the expectation of obtaining additional income or profit.
Investing in a particular financial scheme is a purchase transaction of sorts, and like other purchases, your selection of the scheme should be based on your expectations and the investment scheme’s ability to fulfill these goals. Thus, before diving into the investment pool, it is expedient that you ask yourself certain important questions like:
- Why am I investing?
- What kind of returns am I expecting?
- How much can I afford to set aside for investments?
- What are the obligations I will like to use the gains for?
- How many years do I have to invest?
- What kind of risk am I willing to take in the long run?
Be clear about your investment objectives. These objectives can be broadly classified into:
- Generating an additional source of income
- Financing future needs
- Increasing your savings (capital appreciation)
- Protecting your savings from inflation (capital preservation)
Answering these questions honestly will show you your risk appetite. While some investors are satisfied with investing in a low-risk, low-return investment, others are willing to endure short-term deprivations for long-term potential gains.
This introspective process allows you to select the investment options that best suit your needs and lifestyle.