Investing Begins with Personal Finance
Before delving into calculating alphas and betas, rooting through each and every line of quarterly report to find how businesses are spending R&D capital or drawing trendlines, there are a few things each and every investor should do. Number one priority is straightening out a budget.
Most of the money flowing in and out of Wall Street isn’t from investment banks or Wall Street fat cats, its from people like me and you looking for a solid place to store, and grow, our wealth. But we can’t grow wealth while charging up big bucks on the credit card, and it wouldn’t make sense to invest if we’re worrying about next weeks rent payments.
One of the biggest reasons why most people feel like they never have enough money isn’t that they don’t have enough money, its because they don’t spend it wisely nor do they track where they’re spending money. In my own case, I’ve become keen on buying a soft drink at the nearest gas station nearly everyday. Though it comes out to just $1.17, it adds up to $35.10 per month, or $427.05 per year. That’s just one daily purchase, just over a buck that adds up to over half a mortgage payment.
One of the best ways I have found to see where my money is going is to use an intuitive budgeting software like mint.com. All you have to do is plug in your banking information, credit card information etc, and each day the website will automatically (and safely) add up your expenditures and show them graphically by how much you spend, when you spend the most, and break each purchase down to the least common denominator. Truly, until you know where you’re spending the most of you’re money, you’ll never know how you’re spending most of your money.
Where to best put your money
This often seems like such an easy question to answer, but it may not be easy to answer until you see it in front of your eyes. The best feature is by far the instant savings tool, which compares interest rates on your auto, home, or revolving loan against popular investments to tally up where your money is best invested. Again, it doesn’t make much sense to put $5,000 into a CD bearing 3% when you’re paying 18% to American Express each year.