CONQUERING YOUR FEARS OF INVESTING

Often people do not succeed because of fear. Why do people have a fear of investing? Some people are afraid of making decisions because they continually feel they don’t have enough information. This is what is called “paralysis by analysis.” Subconsciously, they keep on wanting more information to avoid making a decision. Make your decisions based on the information you have diligently gathered and on the trust you have in yourself and others.

Do you have a fear of failure? If you do not act because you’re afraid of failure, you’ve lost your opportunity. Everyone fails at one time or another. That’s part of being human. The only way to conquer this fear is to keep trying. It doesn’t matter how many times you fail. What matters is that you just keep trying and never give up. This is what life is all about. This is how to get ahead.

People coming from countries where the government maintains complete control over them from cradle to grave have difficulty dealing with such freedom. Financial freedom works in the same way. People don’t know what to do with their time or their money. There are too many choices. They become confused and withdrawn. Just remember all the things you wanted to do. Take one day at a time and don’t make any major changes in your lifestyle.

I’ve seen people spend countless hours saving pennies when they could have used the same time making dollars. Using your time and money to create wealth has limitless potential. Don’t get caught up in petty economics. Expend your valuable resources of time and money for more rewarding goals.

Understand the cycles to put your mind at ease

What is wealth creation? It is a word that is widely used and very poorly understood. Many people believe that wealth creation is about making more money. This is part of the process, but wealth creation has a much wider definition. There are five aspects of wealth creation to consider:

• Generate Income
• Manage Expenses
• Maintain and Increase Assets
• Manage Liabilities
• Manage Risks

Wealth creation is ultimately about lifestyle. It is about improving your lifestyle by having the financial means to do this.

Generate Income

Increasing your income is often seen as the way to having more money. While this can be true an increase in income for many people does not solve their problems.

The best way to increase your income is to generate multiple streams of income, or to have money coming in from lots of different areas. Then if one of your income streams stops for any reason you still have other income to rely on. Many households however have one source of income and that is their job. If something was to happen to this income stream then this can create financial difficulties. Wealthy people do not rely on income from one area as a successful business does not rely on income from selling only one product. Start investing into shares, property or cash to increase your sources of income.

Manage Expenses

While focusing on increasing your income it is also important to manage your expenses. There is a very simple rule for creating wealth. Spend less than you earn and invest the rest. This is easy to say but not so easy to do. If you had 10 minutes to calculate how much you earned last year it is very likely that you could do this very accurately. However if you were given 10 minutes to calculate how much you spent last year then many people would be unable to do this and very few would be able to accurately record their spending. How do you know if you are spending more than you are earning? If you don’t how do you know if you are getting wealthier or poorer. Keeping track of where your money goes is an important part of wealth creation.

What is the biggest expense that you will face in your lifetime? Many people respond that it is their house, their children or their partner. All of these are expensive items but not the biggest expense that people will face. The biggest expense that most people in the developed world are subject to is tax. Tax is by far the largest expense that you will face during your lifetime. It is important that you spend time focusing on reducing your tax. Many people will drive across town to save one cent on their petrol, or visit many different supermarkets to save a few rupees on groceries. If they spent as much time focusing on reducing their tax then they would be in a much better financial position than saving a few rupees here or there.

Maintain and Increase your Assets

The goal of a person looking to create wealth is to increase their assets so they can generate an income off their assets. The starting point is to recognise what is an asset. The true definition of an asset is that it puts money into your pocket. Anything that takes money out of your pocket is considered to be a liability. Many of the things that people consider to be assets are in fact liabilities as they cost them money.

Assets can be classified into two categories lifestyle assets and investment assets. The car the house and the boat are all lifestyle assets, while rental property, shares and cash are considered investment assets. The middle class make a critical error when they aim to achieve wealth. They strive to have the nice house, the nice car and the nice boat that the wealthy have, but miss a critical link on the path to creating wealth. They get a high paying job and buy the house, the boat and the car that the wealthy drive. The link that they missed was the wealthy person bought investment assets to pay for the house, the boat and the car. They did not buy them out of their salary.

Manage Liabilities

Debt is not good or bad. It is how the debt is used that will determine whether the debt is of benefit to you or detrimental to your financial well being. If you were to borrow $10,000 and spend it on an overseas holiday, how much would it be worth in a year’s time? You would have memories and photographs maybe, but no money. If you were to borrow $10,000 and buy a car how much would it be worth in a year’s time? The car would possibly be worth $5,000 and certainly less than $10,000. If you were to borrow $10,000 and buy property or shares then how much would it be worth in a year’s time? The exact amount is unknown however it is likely to be worth more than $10,000. So borrowing to buy an asset makes the debt “good” or of benefit to your financial position and borrowing to spend makes the debt “bad” or detrimental to your financial position.

Manage your Risk

If you are a proponent of Murphy’s Law then anything that can go wrong will go wrong. Managing risk is about reducing the impact on your financial situation when things do go wrong. Risks fall into two categories, insurable risks and uninsurable risks. Most people have insurance for their house, car and contents, but fewer protect the things that can have a huge impact on your financial well being. Most people’s major asset is their ability to earn income. This can be protected with income protection insurance which will replace an income if you are unable to work for any length of time. Life insurance becomes important if you have children or a partner that depend on you for their lifestyle. Health insurance may be of benefit to you to cover large medical expenses that could occur.