Allocating for Investing Purposes

Now that you have noticed that a particular investment promises high returns you face the problem of finding the finances for pursuing it.

Until now you have determined that profits are calculated by subtracting expenses from revenues. The latter also represents the basic structure of an income statement. There are other calculations in addition to this one, but for now we will stick to this formula.

Personal Business Profitability

The same formula for determining a business's profitability is applied. In this case revenue is substituted by income. In the personal business case we make estimations on how much we have made (our income) and how much we have spent (our expenses). What is left is the amount of money we have available for investing.

Our income statement reports our past money transactions. It should not be used as an operating philosophy. So, next time you want to allocate a particular percentage of your earnings for investing, don't apply the "income - expenses" formula.

The formula you should try using is as follows:

Income - Investing Fund = Expenses

By sticking to this formula you will first pay to yourself in terms of allocating money for the fund for investments before you have made any other expenses. In such a way you insure yourself to a great extent against a potential loss of the resources for investment somewhere among the daily expenses you incur.

This formula also provides for a more disciplined spending. If you are even more ambitious you may try to allocate a particular percentage of your income to a money market fund or checking account until you have enough money and knowledge to begin investing.

If you are lucky enough and your employer pays you bonuses or any other monetary awards, allocate a certain percentage of them to the investing fund. You should get used to such allocation of a percentage of your earnings to the investing fund so that you can gather more money for your investment goals.

The same tactic is true for small business owners. The latter should establish a realistic profit target. What is left should be enough to cover the expenses that they incur.

The key to finding the money for investing is in the disciplined allocation of resources. Following the mentioned above formula greatly increases your chances of providing yourself with the resources you will need for pursuing your financial goals.

For a trading platform we recommend you try Zecco.
Zecco offers free stock trades, no account minimum, real time quotes, trading community, and is also insured and protected against loss by SIPC. Opening a Zecco account to benefit from $0 Stock/ETF trading is a smart idea. Free stock trades allow you to preserve more of your wealth and save money, which you can invest instead of paying brokerage commissions.

For knowledge we can highly recommend you subscribe to the The Wall Street Journal.

Bookmark this page (CTRL+D) :