By Royce Kamari
What makes rich rich people? See the pattern of expenditure from various income groups at A.S. Make it clear: savings. The real difference between rich and poor is that rich people spend a larger part of their income on savings (retirement and insurance) and education.
Source: WSJ, Labor Department,
When building wealth, preserving wealth, and continuing it to the next generation is the formula for financial success, it is surprising that less than 20% of Americans do have written plans when it comes to investing and even retirement [1].
Paradoxical in human behavior is that we are very rational and able to plan big events in our lives, but this is usually forgotten when it comes to invest. In fact, you will find that only a third of investors have a written plan that guides their investment strategies and their retirement plans.
Why plan needed?
The world of investment is a harsh forest, the world of cloudy waters where the smartest and most organized survives and becomes a success while the rest devoured. Written plan of our normal response short circuit on something emotional as money. This prevents us from using our feelings and emotions. Instead of following the herd mentality that can ask you to make an unwise investment decision, a plan will force you to stick to the rational strategy supported by the principles of fundamental investment. Some difficult emotions you have to overcome when investing include:
1) Fear of Failure
2) the tendency to proceed with a certain approach just because you start
3) personal problems such as relationship problems at home
It is also important to show the main reason why investors fall to the market and lose their valuable funds:
1) Facts and numbers that are removed misleading investors to invest in companies or structurally unhealthy financial instruments
2) Overfefidence makes some investors think they are invincible and that they can always beat the market.
3) Everyone wants to be seen as a champion, General Success who is able to lead the army for victory. This can make you make an investment decision that is not based on rational thinking but the desire to impress friends, coworkers or your family members
By having an investment plan written and actually follows what he said, you will dramatically increase your chances of winning and increasing the size of the egg nest or portfolio of your investment. The following are simple steps in creating plans and avoiding the mentality of flock and instinctive impulses that change us to be stupid when investing:
1. Set specific and realistic goals
For example, instead of saying you want to have enough money to retire comfortably, think about how much money you need. Your specific purpose is possible to save $ 500,000 at your time 65.
2. Calculate how much you need to save every month
If you need to save $ 500,000 when you are 65 years old, how much do you need to save every month? Decide whether it’s a realistic amount for you to set aside every month. If not, you might need to adjust your goals.
3. Select your investment strategy
If you save for long-term goals, you can choose more aggressive and higher risk investments. If your goal is short term, you might choose a lower risk, conservative investment. Or you might want to take a more balanced approach.
4. Develop investment policy statements
Make an investment policy statement to guide your investment decision. If you have an advisor, your investment policy statement will describe the rules you want to be followed by your advisor to your portfolio. Your investment policy statement must be:
Determine your investment goals and objectives,
Explain the strategy that will help you fulfill your goals,
Explain your expectations and your time horizon,
Including detailed information about how much risk you are willing to take,
