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5 Factors which determine your risk profile

Factors which determine your Risk Profile:

Written by R. A. Stewart

Your risk profile is the amount of risk you are advised to take with your investments. There are many factors which determine your risk profile with the main one being whether the money you are investing is needed in the short term, medium term, or long term. 

Short term is when you need the money within 12 months

Medium Term is when you need the money within 5 years

Long term is when you need the money in more than five years time

Here are the main factors in determining your risk factor:

Factor 1: Your age

Young people have one thing in their favour which the older ones don’t have and that is time. The young ones have more time to recover from financial setbacks such as a share market crash, a job loss, or whatever, therefore are about to invest in growth funds which can be volatile. Older people need to be a little more conservative. New Zealand financial advisor Frances Cook has a formula for working out what percentage of your portfolio should be in shares; it is this: subtract your age from 100. Even if you are in your twenties that does not mean you should be reckless with your money and invest into some kind of risky venture. 

Factor 2:Your health

Your health is a major factor in determining your risk factor. If you have a health condition which requires or may require expensive medical treatment in the future then investing in growth funds may not be your best option because you do not want to lose your money just when you need it. This does not mean that you should not invest anything in growth funds but just not most of it. It may be a good idea to set up a bank account for those medical bills.

Factor 3: Your Personal Circumstances

Your own personal circumstances need to be taken into account. If you are single with no commitments then you will be able to take more risks with your money than someone who is married with children.

Factor 4: Your Debts

Your debts are a big factor in what you should do with your money. There is no point in investing your money at 5% interest when you are paying 15% interest on your loans. People with debts have a responsibility to pay off their own debts and need to prioritise that before turning their attention to investing. 

Factor 5: Your Temperament

Your temperament is a factor. If you are going to lose sleep at the thought of losing your money; something which can happen if you are investing in the share market, then going for more conservative funds is better for you but when it comes to long term investing such as your retirement fund then investing too conservatively will mean that you will likely end up with a lot less money in the kitty when you retire.

About this article

This article is of the opinion of the writer and may not be applicable to your own personal circumstances, therefore discretion is advised.

You may use this article as content for your blog or ebook. Feel free to share this article with others.

www.robertastewart.com

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Budgets for personal finance

Establishing a budget is an excellent way of tracking your spending and  you do not need to be struggling with money matters in order to benefit from using a budget. 

Budgets can expose some cold hard home truths

Doing a budget can be the simple solution to rectifying a challenging financial situation but few people do a budget because it exposes spending habits which they prefer to keep hidden. Many people do not want to change their habits despite it costing them an arm and a leg.

There are two parts to a budget.

Your income and your spending.

Your income can be wages from a job, profit from a business, or  income from investments.

Your spending covers everything which is costing you money. 

In short if it makes you money it is income and if it costs you money it is spending.

If you can do some simple maths you will soon discover whether you are left with a surplus or a deficit.

If you have a surplus and you are in debt, use the money to pay off your debt.

If you do not have any debts you can use some or all of your surplus for one or more of your goals; this could be saving for a holiday, saving for a house deposit, saving for a car, or investing it in the share market.

There are so many places to invest your money these days that if you did your homework you will find an appropriate investment for your circumstances.

If you have a deficit you need to take some kind of action rather than try and bury your head in the sand because if you do nothing your financial situation will worsen.

There are two things you can do to balance the books;

1 Reduce spending

2 Increase your income

I don’t know how financially literate you are but if you do not understand financial jargon then I advise you to see a financial advisor to discuss your situation. The public library will have information on where to find a budget advisor.

At the Library will will also find good books on how to manage your finances and increase your wealth.

A budget advisor is unable to help you unless you are completely honest about where your money is going. 

It is up to you to make the decision on which sacrifices you are prepared to make. No one else can make that decision for you.

Your spending can be placed in two categories, your needs and your wants. You may be able to reduce some of the money you spend on your needs but it is the money you spend on your wants which you may find easier to eliminate. 

Being able to afford whatever it is you need can be as simple as re prioritizing your spending. It is a matter of transferring your spending from one item to another.

ABOUT THIS ARTICLE

Feel free to share this article with others. You may use this as content for your ebook or web page. Check out my other articles on www.robertastewart.com

www.robertastewart.com

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7 Ways that Emotional Spending can ruin your financial plan

7 Ways that Emotional Spending can ruin your financial plan

Written by R. A. Stewart

The best financial plan can be undermined by emotional spending; unless you have the right mindset all of your self discipline and planning can be undone by a moment of madness. 

Here are 7 Emotional Spending Habits can hurt your finances:

  1. Pets

Pets can be very costly and unless you are able to keep your emotions in check they can cost you an arm and a leg. A perfect example of this is when a dog or cat lover will spend a grand or more on a vet bill for their pet moggie when the practical thing to do is to just have the thing put down. Keeping pets can be a drain on one’s finances so it is not surprising that the SPCA are inundated with unwanted pets during the cost of living crisis. The money spent on keeping these pets could have gone toward a rainy day fund which would have enabled the people concerned to weather any financial storm which came along. Personally I think that spending $1,000 on a cat is stupidity.

  1. Expensive Gifts

Buying expensive gifts is another drain on one’s finances. The recipient may appreciate the gift but it is not the same as liking you. What I am saying is that if the only reason why they like you is because you are spending a fortune on them then they like you for the wrong reasons. People who are always buying gifts for others are approval seekers. They seek approval from others and gift giving is their way of achieving this. Giving expensive gifts will drain your finances and is not worth it because it will add up to a fortune in the long run.

  1. Alcohol

Spending too much on alcohol has put paid to many promising careers not to mention being a drain on their finances. Problems with alcohol are usually brought on by emotional needs. Whatever issues you have will be made worse by alcohol therefore it is better to deal with whatever problems you have rather than trying to forget them with alcohol.

  1. Sales (Boxing day, Black Friday, etc.)

You have seen all of the sales advertised on the TV and the internet. Black Friday and Boxing Day sales The sales frenzy on these two days is unreal and it is generated by advertising which appeals to the “Fear of missing out” emotion. 

  1. Lotteries

Gambling is a harmless bit of fun if you are sensible about it but it is when you start placing sizable bets that are affecting your budget that when there is a problem. If that sounds like you then it is time to take stock and find a less expensive hobby.

  1. Cars

Some people are not satisfied with just a vehicle which is adequate for their requirements; they have to go out and spend a lot more on something which is flash in order to impress their peers. Your ego has to be kept in check otherwise it will cost you a fortune over your lifetime. 

  1. Manipulation

Having a strong will and self-discipline will help you become wealthy because there will be people who you have to deal with on a daily basis who have differing views to you as far as finances are concerned. People will try to get you to conform to their values in order to make you just like them. Some will try a tactic known as manipulation by guilt. This is when you are made to feel inadequate or guilty because you won’t do as they say or conform to their value system.

The bottom line is, “They will play on your emotions.”

Don’t try to reason with these people because that type of individual tends to contradict everything you say.

About this article

You may use this article as content for your blog/website or ebook. The article is of the opinion of the writer and may not be applicable to your personal circumstances.

www.robertastewart.com

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Financial Windfalls

Financial Windfalls

What it is

Written by R. A. Stewart

A windfall is a large amount of money you didn’t expect to receive. It could be $200, $1000, and more. It is an amount of money which was not budgeted for because it arrived unexpectedly. Unless you have mastered the art of financial discipline there is a risk that this good fortune will be frittered away with no improvement in your financial situation. It is important therefore that you have a plan for any unexpected cash that comes your way. In this article I will take a look at some of the more common forms of windfall and explain how best to take advantage of them.

Types of Windfalls

There are various types of windfalls, they could be:

An Inland Revenue refund

An inheritance of money or property

Lottery winnings

Gift from a rich relative

Life insurance payout

Employee bonus

These are just some of the kinds of unexpected windfalls one may receive during their lifetime. It is important not to pin all of your hopes of a financial miracle on a windfall if you are in some kind of financial mess. There is no substitute for diligence. Most of the windfalls are the result of living a responsible, diligent life; for example you are not going to receive a tax refund or an employee bonus if you are not working.

As for a lottery win; one must understand that for every one that gains a windfall in this way, there are many thousands who do not. It is a case of thousands contributing money into the pool but only a few taking out. This is luck! The amount of money lost by each individual lottery player is equal or in most cases greater than what one considers a large windfall.

How to take advantage of a windfalls

Gaining a windfall is one thing but taking advantage of it is another. People who come into a sum of money unexpectedly will follow the same pattern of behavior with any windfall as they do when they receive their pay packet…

Those who are spenders will spend it, those who are savers will save it, and those who are investors will invest it.

The end result will be that they will be in the same financial position as they were before  they received their windfall.

Is a Financial Windfall Discretionary Spending Money?

That all depends on your personal financial situation.

The answer is “No” if…

You have consumer debt.

You have credit card debt.

You have a student loan to pay back.

You have some other debt.

Even a mortgage.

The answer is “Yes” if…

You have absolutely no debt.

Money obtained from a financial windfall is discretionary spending money if you have no debt but that does not mean that you should just go and fritter it all away. Windfall money can be used to strengthen an already solid financial situation. One way you can do this is make voluntary deposits into your retirement fund or to put it toward your emergency fund.

About this article

This article is of the opinion of the writer and may not be applicable to your personal circumstances therefore, discretion is advised.

www.robertastewart.com