When I meet people who attend our adult financial education workshop program I am often confronted with the comment: “I’m expected to make a decision about an investment and I don’t have a clue how to make a choice.”
Once I drill down into the detail there are a few factors that are often over looked.
The person’s attitude to saving and investing
Many people, as they were growing up and into adulthood, have never had a ‘money mentor’. Nor have they ever had the right grounding in terms of understanding effective and positive money habits.
Some people grew up where money discussions was taboo and money was often a conflict point. Others may have had a negative grounding in terms of money. This is evident in people’s attitude to spending and saving once they are adults.
You can’t expect to save if you can’t plan and manage your spending
How can people be expected to save for a future event such as retirement if their day to day money management is poor and ineffective? Many people are poor at managing their personal spending plan or budget.
Overspending and wastage spend leads to low savings levels and ‘budget blowout’ often leads to lapses in savings. Savings become sporadic and low. The end result will be that any longer term financial planning objectives will be missed.
Debt – the major hurdle to getting ahead
- Debt is one of the biggest obstacles to financial freedom.
- Debt holds us back and ensnares us often into a downward financial spiral.
- Debt demoralises us and will inhibit us from ever saving if we do not take steps to eradicate and eliminate it.
Debt reduction and elimination requires a change in lifestyle and a change in attitude. It starts with you – nobody else – and it won’t just go away.
Investments can be a tricky and complex subject but it doesn’t have to be. There are a few basics that can be mastered in a short space of time which will make decision making a little easier.
There are a few factors to consider. The first two factors that are coupled is investment risk and time. Certain investment types or investment classes are on a scale somewhere between low, medium and high risk. Time is a factor. The general rule of thumb is the more time you have to invest the more risk you can tolerate.
People need to understand that there are four general asset classes which have distinct general risk features. Cash and money market type investments feature low on the risk scale and would suit shorter investment time horizons.
The risk scale progresses to bonds, to property and ultimately direct investments into shares and equities. The more risk the more time.
There is no get rich quick route. Investments can be mixed and blended to achieve the desired combination to suit a particular investors needs and objectives.
- Understand your attitude to money. Take corrective steps to curb negative spending habits.
- Get your monthly money management in order.
- Free up savings. Save on a regular basis and make this a priority.
- Eliminate debt and free up further savings. This will boost your longer term savings provisions.
- Stay debt free.
- Set challenging longer term investment goals.
- Be capable and make sense of your investments. Ask questions of your financial planner and don’t just accept.
People are often thrust into a situation to make an investment choice but there are often planning requirements that are overlooked. Financial planners need to conduct a thorough ‘background check’ to ensure that there is a connection between the past, the present and the way forward.
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