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Stock Investing
If you’re going to invest money in stock investing, the first thing you need is money! Where can you get that money? If you’re waiting for an inheritance to
come through, you may have to wait a long time, considering all the advances
being made in healthcare lately. What’s that? You were going to invest in
healthcare stocks? How ironic. Yet, the challenge still comes down to how to
fund your stock investing program.
Many investors can reallocate their stock investing and assets to do the trick.
Reallocating simply means selling some investments or other assets and re stock investing
that money into stock investing. It boils down to deciding what investment or
asset you can sell or liquidate. Generally, you want to consider those investments
and assets that give you a low return on your money (or no return at
all). If you have a complicated mix of investments and assets, you may want
to consider reviewing your options with a financial planner. Reallocation is
just part of the answer; your cash flow is the other part.
Ever wonder why there’s so much month left at the end of the money?
Consider your cash flow. Your cash flow refers to what money is coming in
(income) and what money is being spent (outgo). The net result is either a
positive cash flow or a negative cash flow, depending on your cash management
skills. Maintaining a positive cash flow (more money coming in than
going out) helps you increase your net worth. A negative cash flow ultimately depletes your wealth and wipes out
your net worth if you don’t turn it around immediately.
The first step is to do a cash
flow statement.
Don’t confuse a cash flow statement with an income statement (also called a
“profit and loss statement” or an “income and expense statement”). A cash
flow statement is simple to calculate because you can easily track what goes
in and what goes out.
With a cash flow statement, you ask yourself three questions:
In your cash flow statement, jot down all
sources of income. Calculate it for the month and then for the year.
Include everything, including salary, wages, interest, dividends, and so
on. Add them all up and get your grand total for income.
Write down all the things that you spend money
on. List all your expenses. If possible, categorize them into essential and
nonessential. You can get an idea of all the expenses that you can reduce
without affecting your lifestyle. But before you do that, make as complete
a list as possible of what you spend your money on.
If your income is greater than your outgo, then you have
money ready and available for stock investing. No matter how small the
amount seems, it definitely helps. I’ve seen fortunes built when people
started to diligently invest as little as $25 to $50 per week or per month.
If your outgo is greater than your income, then you better sharpen your
pencil. Cut down on nonessential spending and/or increase your income.
If your budget is a little tight, hold off on your stock investing until your
cash flow improves.
Use your cash flow statement to identify sources of funds for your stock investing
program. The more you can increase your income and the more you
can decrease your outgo, the better. Scrutinize your data. Where can you
improve the results?
Here are some questions to ask yourself:
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How can you increase your income? Do you have hobbies, interests, or
skills that can generate extra cash for you?
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Can you get more paid overtime at work? How about a promotion or a
job change?
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Where can you cut expenses?
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Have you categorized your expenses as either “necessary” or
“nonessential”?
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Can you lower your debt payments by refinancing or consolidating loansand credit card balances?
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Have you shopped around for lower insurance or telephone rates?
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Have you analyzed your tax withholdings in your paycheck to make sure
that you are not overpaying your taxes (just to get your overpayment
back next year as a refund?)
Finding investment money in tax savings
According to the Tax Foundation, the average U.S. citizen pays more in taxes
than in food, clothing, and shelter combined. Sit down with your tax advisor
and try to find ways to reduce your taxes. A home-based business, for example,
is a great way to gain new income and increase your tax deductions,
resulting in a lower tax burden. Your tax advisor can make stock recommendations that work for you.
One tax strategy to consider is doing your stock investing in a tax-sheltered
account such as a traditional Individual Retirement Account (IRA) or a Roth
Individual Retirement Account (Roth IRA). Again, check with your tax advisor
for deductions and strategies available to you.
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