The Art of Money Management And Investing

Money is an essential resource needed for our everyday survival. With it, we can pay our bills, spend on our hobbies, scale businesses, and so on.

That said, it’s all too common for people to find themselves at a zero or close-to-zero balance the day before their next payday. 

Whether it’s because of a plethora of bills or impulsive spending, seemingly little purchases can accumulate and turn your bank account into a dry desert, figuratively speaking.

Regardless, building money is crucial, especially if you have dependents and/or long-term goals you’re aiming to achieve.

After all, you’re just one bad accident from being in a burgeoning pile of debt.

If you want to ensure that you have a financial safety net in place, prioritise adopting smart financial management practices.

Need some tips? This guide will give you six actionable advice on how you can create wealth for yourself and your family.

Let’s dive right into it.

1. Budget Your Finances

One of the most important financial activities people can do is track their money movements.

If you fail to do this, it’s easy to spiral into the habit of spending like there’s no tomorrow.

A budget helps you visualise your net worth and where your money goes. It involves real-time curation to be most effective—tracking the costs, income sources, and overall capital of you and your family. 

By upholding this habit, you can actually see your spending habits and, ideally, make the necessary adjustments to retain more money or meet financial objectives each month.

That said, your budget isn’t merely a cost tracker. It’s a financial tool that you can assess and redefine. 

A great thing about it is that you can customise it to see specific data points like percentage breakdowns and financial ratios. Alternatively, you can also get a dedicated app for budget tracking.

To paint an example of the utility of budgeting, if you see that your eating-out costs are much higher than you’d like, then you can lower your budget for that specific activity. 

Of course, disciplining yourself to take action after budgeting is another thing altogether, but by budget tracking, you’re making it easier for yourself to follow through with these cost-saving measures.

2. Generate Multiple Sources of Income

Money management isn’t just about saving more and optimising your bank account’s net worth. It’s also about wealth generation.

There are two types of income you can receive: active and passive. 

Active income is the wealth generated on an active basis, such as from a job, a freelance opportunity, or a hands-on business.

Passive income, as the name implies, is money earned without as much effort as active income. 

While you may continue to check up on it on an ongoing basis, it’s much less interactive than active income.

Stocks, pension funds, rentals, and some businesses can be classified as passive income.

If you want to manage money properly, consider opening up these various streams of income. Make it a goal to open two passive income streams in under a year, for instance.

It doesn’t have to be a breakthrough investment. As long as you are earning more money day by day, you’re doing your part to create a good wealth backbone for your family and future self.

3. Meet Debt Obligations

Money management isn’t only about creating wealth. It’s also about controlling your cash outflows. In other words, you need to get your dues in order.

Debt isn’t generally a big issue. In fact, when running a business, acquiring loans can help you operate more efficiently and at a faster scale.

That said, if you mismanage your debt, it can turn the tables and put you at risk of losing more money over time.

That’s why before taking on loans from credit unions or banks, be sure that you can pay it over its course. 

Vet different loaning providers and find the ones that have the most suitable terms. 

This is individual to you—so having a deep understanding of your current circumstances and financial goals is crucial. 

If you have multiple debts, consider consolidating them into one for easier tracking. 

Be sure to prioritise paying for the one that has the deepest interest rates too. This way, you can weather financial difficulties with lesser intensity.

4. Research Your Investments

It can be fun to keep up with the trends and follow the hype surrounding a certain stock, but if you’re aiming for sustainable growth, always do your due diligence and research your investments wisely.

There are a plethora of investment choices you can make that are wholly viable, from Telstra shares to a piece of the ASX 200 index fund. That said, everyone has their own financial circumstances and risk tolerances, so be sure that your decision fits your financial criteria.

For instance, a popular investor may allocate a large sum of money to an investment that they’re raving about. However, that sum of money is chump change to them, while for you it’s quite a hefty chunk. 

As such, be sure to keep your decisions calculated and relative to your own abilities.

Once you’ve spent enough time making your decision, go ahead and put some money in the stock market—nothing will be gained or lost otherwise.

5. Learn Technical and Fundamental Analysis

Picking a profitable stock doesn’t have an exact guideline—however, certain practices can help improve your odds of striking gold. 

These practices? It’s by performing two types of analyses before investing. These analyses are technical and fundamental analysis.

Fundamental analysis looks into a company’s intrinsic value through its financial statements and profitability. It also looks at market trends, management moves, and the scope of the economy surrounding the stock company in general. This analysis helps evaluate a stock’s real-life value.

On the other hand, technical analysis relies solely on the changes in the graph. It looks into price movements, historic movements, and other indicators to see trends that may indicate a stock’s future position, whether it’s for growth or loss. 

Examples of approaches that utilise technical analysis include moving averages, Bollinger bands, relative strength index, and a bunch more. This approach is the most rational and uses the figures to determine whether a certain stock is good or bad to invest in at a certain time.

6. Diversify Your Stocks

In money management, it’s wise to avoid putting all your money in one category. It only takes one unfortunate directional change or broader policy change to sweep your capital and earnings away for good.

To mitigate the chances of your portfolio sinking for good, it’s highly recommended that you diversify your stock portfolio. This doesn’t only mean putting some capital into different companies—it also means putting your money in different industries and exchanges altogether.

For instance, if you have a stake in healthcare, consider putting up money in an industry you believe in, like technology or retail. 

Furthermore, if you believe that a certain exchange is up and coming in the global arena, consider investing some of your money in stocks there with a large market cap.

That’s not all. You can also consider investing in non-stock investment vehicles. This includes cryptocurrency, bonds, and REITs. Of course, you’ll have to consider your personal risk profile, but if these investments fit your criteria, they could be excellent ways to ensure that you can stabilise your stock portfolio.

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