"Watch where you're going!" my mother used to say - often a hair too late.  As I turned to look behind me at some hapless object I'd just tumbled or spilled or catapulted, I bumped into Mom's apron strings one too many times.  There I was, three shades of red, looking up into that stern punum and making an abrupt about face to deal with the mess I'd made.  For some people, that may sound like an awfully familiar distant memory. For others, it may resemble yesterday's family outing.  (If you're over 30 and you're still bumping into your mom's apron strings, maybe we should have a talk.  Drop me an email, and we'll have a heart to heart.)  Either way, the lesson is key:  you've got to be aware of your surroundings.  Like Mom says, you need to watch where you're going.

Did you ever try to drive a whole block by looking in the rear view mirror?  No, of course not.  If you're looking backward, it's pretty tough to move ahead.  You're likely to hit something, and it could wind up being very expensive in more ways than one.  Still there are plenty of folks who try to do just that with their personal finances.  They're so busy looking at the mess in their wake, they can't see the obstacles ahead to steer around them.  Moving forward takes awareness of your surroundings.  It means knowing where you're going and staying focused on your destination, with only an occasional glance in that rear view mirror.

Investing is a lot like that.  You can think of it as a road trip.  Before you get into your car, first you've got to know certain parameters.  You've got to have a strategy, some clear picture of where you're heading and how you're going to get there. It takes more than simply getting into your car and driving.  Like any journey, you need to define your point of origin, you need to know your destination, you've got to be clear on the route, and you've got to know how to operate your vehicle.

Know Where You Are

Now is a great time to take a look at your finances - to define your point of origin.  Get a feel for the lay of the land where you are now by adding up your income, defining your assets, and calculating your essential monthly expenses.  There are some great budgeting tools available on SectorMatic Money Site.  A good old fashion pencil and pad of paper work wonders, too.  Take a look at how much you can reasonably afford to set aside for your investments.  If you don't like what you see, take a look here on my blog for tips on boosting your monthly revenue.

Define Your Destination

What do you want to get out of your investments?  In other words, what are you striving toward?  Do you want to make your family's personal finances more secure?  Are you looking to prepare for retirement?  Or do you want to get rolling-in-it rich?  Maybe it's all of the above.  You've got to be clear on what you want to do.  You've also got to give yourself permission to do it and recognize that it is possible to get where you want to go.  Break it down into smaller sub-goals, and be realistic about what you're willing to do on a routine basis to get there.  If you're taking a road trip to Salt Lake City, you're going to need to keep an eye on your mile markers.  Some stretches of that road are a long way in between bathroom breaks!  Well... unless you live there already.  But you get the idea.  Plan accordingly.

Map Your Route

By mapping your route, of course I mean develop an investment strategy.  This is basically a plan for investing your money in various types of instruments that will help you meet your financial goals in a specific amount of time. You want to take a look at how willing you are to take a risk - analyze your risk aversion.  Then you want to choose investment instruments that offer you diversity and opportunity while playing to your level of comfort with risk.  Stocks are one type of investment, sure, but there are different types of stocks, different markets, different sectors, and different companies that you can invest in.

Know your Vehicle

If you are new to investments, it's a good idea to work closely with an expert such as a financial planner before making any investment decisions.  It really is okay to stop and ask for directions!  A financial planner can help you develop an investment strategy that will not only fall within the bounds of your risk tolerance and your investment style, but will also help you achieve your financial goals.

If you haven’t done your research, it can quickly become very confusing.  There are so many different types of instruments and individual investments to choose from. Your strategy, combined with your risk tolerance and investment style all combine to move you in the direction of your destination.

Coming Into the Home Stretch

Investing money with a goal in mind and a strategy for reaching that goal is essential, but it's also the one piece that a lot of folks overlook. Nobody should hand their money over to a planner or broker without knowing exactly what that money is being used for and when they will get it back. If you don’t have a goal, a plan or a strategy, that is essentially what you are doing. Always start with a goal and a strategy for reaching that goal.  Kick the tires on your vehicle once in a while, and be willing to make a course correction when you need to.  Keeping your vision ahead of you will carry you a long way.  Just remember to enjoy the journey.

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Until next time,

Jack Schmidt
Spokesman

SectorMatic Money Site
Everything for the Big Spender on a Budget

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