Sound money management takes on even greater significance when the economy and financial markets are struggling. A big part of sound money management lies in avoiding mistakes such as:
- Panic selling. Don’t let emotions drive your investment decisions. Instead, review your objectives, your investment horizon, and your feelings about risk before taking action. Spend time analyzing your investments. Are they well-diversified? If not, adjust them for a more comfortable balance of risk and return potential.
- Postponing investing. Investing on a regular basis, regardless of short-term market conditions, will help you take advantage of the power of compounding (the process of interest earning interest). Through compounding, your money works harder for you over the course of time. And don’t forget a stock market downturn may be a great opportunity to purchase shares at favorable prices.
- Accumulating high-interest debt. Credit cards may seem like a convenient way to purchase big-ticket items. However, the steep interest charges may cost you substantially. Keep your debt low by borrowing sparingly and setting aside a cash reserve for current and emergency financial needs.
- Focusing only on the short term. Current expenses and short-term needs may at on the forefront of your mind. But don’t lose sight of your long-term needs, such as your child’s college education and your own retirement. Prioritize your financial objectives according to their importance, time frame, and how much you need to accumulate. This will help you keep things in perspective. IBI