Wednesday
July 30, 2014

Homework Help: PERSONAL FINANCE / composition

Posted by Jim on Monday, January 31, 2011 at 10:46pm.

Ok, need another set of eyes... Here is a question I had to answer. Want to get a second opinion if it reads well, and makes sense. Thanks for any comments.

What things do you take into consideration when beginning to plan for investments? Why is it important to understand your long term goals before you begin investing?


Here is my answer...

Because we must live with the results, we are completely responsible for our financial and investment success or failure. To ensure we are ready to start an investment plan, we need to establish a firm foundation to build. To do this, we need to ask ourselves a couple questions. Have I established my financial goals? Am I investing for a long or short-term goal? It is also imperative to be living within your budget and meeting the basic needs. Having a comprehensive budget will allow you to reduce any outstanding high interest credit debt. In addition, this will allow building an emergency fund, which is essential. You need an emergency fund so you do not have to cash in investments to cover a financial emergency. Another item to consider is insurance coverage. Having adequate insurance for your situation is a prerequisite to investing. Lastly, do you have a home or plans to purchase a home? If you own your home, it is advisable to have some equity in your home before starting to invest.

It is important to understand your long-term goals before you begin investing because you need to establish how soon you need the money, what risks you are willing to take and what the objective is for that money. Without a plan, you will invest blindly, and without a purpose.

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