Managing your financial life is not a “set it and forget it” exercise. You must take a comprehensive view and stay engaged. As you work through the process and become more conversant with concepts, many financial truths are worth remembering:
- The importance of time: Compounding is powerful.
- The importance of risk and return: There are many types of risk.
- The importance of discipline and conviction: Stay true to your plan.
- The importance of patience: Study your investment decisions and don’t rush.
- The importance of value: Value is not what you paid for something. It is what someone else is willing to pay for it.
- The importance of supply and demand: Both have an impact on value.
- The importance of expectations: They also drive value.
- The importance of liquidity: How easily something can be converted to cash is key.
- The importance of total return: Look at both appreciation and income.
- The importance of taxes: Timing and keeping good records are essential.
- The importance of fees: They can add up, especially over time.
- The importance of inflation: It affects your future spending.
- The importance of people: The person managing your money, managing the fund that you have invested in, or managing the company that you have bought stock in all make a difference.
When it comes to your finances, you must be honest with yourself, or you will not be successful and achieve your goals. Try to look at your financial picture the same way an objective outsider would. How risky is your profile? What are your opportunities to grow assets? Are you on track to meet your goals? Learn from your mistakes. Look at what did not turn out well for you, figure out why, learn from it, and move on.
