Financial Planning before You Start Stock Investing ........

Step 1: Assess your financial situation

How much money is coming in each month? This is your monthly income

How much is going out each month? This in your monthly expenses

How much net income is available each month (for investment)?

Net Income = Income - Expenses

Step 2: Analyze and Managing your financial

Track your expenses and examining where you spend your money.

Adjust your spending to get positive cash flow (income more than expenses).

Control your debt level. (cut spending, pay debt)

Create emergency fund (3~9 months expenses)

 

Step 3: Controlling your money (means controlling your life)

   Ask yourself the following question:       

       What is important to me?

       What do you want to do in life?

       Do you have a life or you just alive?

       What do I want to accomplish before I die?

       What is your net worth?  

         Net Worth = Total Assets - Total Liabilities

Using your credit wisely is the best investment in your life. If you don't have the cash to make a purchase, don't use your credit card to let yourself go into debt. You control your credit and debt, and not let them control you.

Once you've got your money under control, then you can put it to work for you. One of the best thing in life is let the money work for you instead of you work for money

 

Step 4: Find a financial plan that work for you (fit your life-style)

Learn the difference between spending money to achieve goals and enjoy life -- and spending money just to spend money.

Short-term goals: This is the day-to-day stuff, such as going out to the movies once a month.

Mid-term goals: What would I be doing if I were financial freedom?

Long-term goals: Think of these as once-in-a-lifetime, such as buying a house, retirement or a trip around the world.

 

Step 5: Assessing Your Risk Profile and Planning Your Asset Allocation

Asset Allocation is a mixture of your portfolio into different proportions of stocks, bonds, real estate and other investment vehicles and reallocation of the asset when it is out of your original allocation percentage due to the market fluctuation or expectation of better relative returns in other markets. This asset allocation require macro forecasts of broad based market movement and follow by stocks/bonds picks which require micro forecasts of individual securities to yield better than average return.

 

Step 6: Action! Use your money to make money

Channel your additional money to buy assets that can generate passive income. You will be at the state of financial freedom once your passive income generated from your assets are enough to fund your expenses. Another way of measure wealth is how much money you have in order to continue keep you alive without work.

The magic of compound interest (rule of 72). The sooner you are able to start the better. The one necessary ingredient to making money is time. So the sooner you begin, the more time (and money) you'll have. If you want to be somewhere better in the future, you have to put the money into it now.

Investing your time before investing your money. Start with some of the easier books and then move on to deal with advanced theory on investing. Reading is one of the more important things an investor can do. The more you read and absorb, the better you are able to evaluate different investment opportunities. Keep pressing to learn more and more. The more you learn the more you will realize there is to learn. The total amount of wealth you are able accumulate is proportional to the financial knowledge you have.

You've worked too hard to get control of your money. So, don't throw it at an investment product you don't understand. Get yourself to be an investor or trader as fast as possible if you are still not there yet!

Invest yourself or Mutual Fund? You have many choices to make when it comes to investing. The first one is how involved you want to be in your investing program. In these days of online stock-trading Web sites, you can handle your investing yourself. It's exciting and keeps you in control of your financial future. However, if your interests in life do not include numbers and stock market analysis, you can pay someone else to help your money grow. Invest wisely, not beyond your knowledge and capabilities. Don't be easily swayed by hot stocks and get-rich-quick schemes. If you know nothing about investments, get started by putting your long-term investment money in mutual fund (or unit trust).