More Than Finances

Get your finances in order!

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Knowledge is Power When it Comes to Investment

The more you know… It’s amazing how knowledge changes your behavior. Most of us are bad with money, or we were sometime in the past. We all understand that it’s important to change these kind of financially wasteful behaviors, but we just…don’t…do it. Why is that? I don’t think it has much to do with lack of self-control, though that’s the thing we tend to beat ourselves up about. It’s that we don’t know what we’re doing.

 

Ol’ Plato once said that ignorance is the only evil. Applied to personal finance, that maxim would indicate that the more we learn about money, the better our financial lives will become. That’s an interesting thought, but you might wonder if it’ll hold water in real life. I can say from personal experience that I wasn’t able to make a change in the way I used my money until I learned about money itself.

 

Financial knowledge gives you a perspective that you’d otherwise lack. You learn the value of money, and you learn why it’s important not to waste it. You also learn how your life can change for the better if you have more of it, or simply regulate it better. These are important realizations that everyone needs to have if they hope to have any future financial stability. This knowledge is also the foundation of investment. You can’t handle investment if you can’t handle your personal finances.

 

So where does one start? This can be the most discouraging part of learning about money. Not all of us have the time or resources to get a degree in finance. We just want to have more money left over after we pay our bills. I would recommend a double-tiered approach:

 

Learn about the money you have. This is the essence of budgeting. You’ll have to track all the money that you brought in during the last couple of months. Try to get your final figure down to the dollar. Then figure out how much you spent. Most people find that the second figure is higher than the first.

 

Now figure out how much money you should spend next month. When the 1st of the month rolls around, stick to this plan. MAKE it work. If you’re able to make this budget work for several months in a row, you won’t be sinking or treading water. You will have learned the basics of personal finance and you’ll be ready for something more complicated.

 

Learn about the money you want to have. Investing is about growing the money you have. A great way to learn about basic investment is CMC Markets. They have a lot of educational resources in addition to their brokerage of quite a handful of quick turnover investment forms. Because their investments can be initiated and grown to maturity in hours or days, they’re a great way for a new investor to learn investment before tackling investments which will take decades.

 

Knowledge is the foundation of investment. Without it, you won’t be able to tell where to put your money. Knowledge is the best way to allay risk in investment. So invest in learning. It has a better return than any other investment.

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Consider Cash Flow When Investing in a New Company

If you are new to investing, you may wonder how to successfully analyze a company’s financials.  Many people look at the company’s net income, which is an important factor.  However, you should also consider other numbers such as the company’s statement of cash flow.  A U.S. or U.K. based company’s cash flow management can tell you a great deal about the company, and, therefore, whether or not you want to invest in the company.

What to Analyze on the Statement of Cash Flow

When analyzing the company’s statement of cash flow, there are three important parts to consider—operations, investing and financing.  Each piece gives you a separate piece of the company’s corporate finance strategy and analyzing all of them together helps you determine if the company is financially strong and a company you would like to invest in.

The operations piece of the cash flow report tells you how much money the company can generate internally.  The investing piece shows you how much the company is spending for acquisitions, investments, property and equipment.  It also shows you how much the company is bringing in through their investments.  Finally, the financing piece shows how much the company is spending to service their debts as well as the debts they have recently paid off.

Another important piece to consider is how often the company is issuing cash dividends as it takes cash to do so.

When you consider net income as well as the company’s statement of cash flow, you can get a fuller picture of a company’s stability and financial success, which in turn will help you determine if you want to invest with them.

Steps for an Investing Novice

Of course, a new investor may want to think twice about investing in individual companies without guidance.  A better strategy for a first time investor may be to invest in mutual funds so the risk is spread out over several companies.  As you invest more and become more comfortable with investing, you can begin to invest small amounts into individual companies that you research careful.  As your confidence and, hopefully, investments grow, you can begin to invest larger sums.

Likewise, you can hire a financial planner, but it is still in your best interest to do your research and feel comfortable with the company you are investing in because it is your money.  If you lose that money due to a bad investment, you will suffer the financial consequences, not your financial planner.  When investing, no one cares about your money as much as you do, so invest wisely after careful planning and research.

Post by Melissa