Amidst the recent uncertainty and turmoil of the global financial markets, many investors have been left wondering if this is still a good time to look for investment opportunities. As with everything in life, there are two sides to the same story.
On the one hand, the economic turmoil could be taken as a clear sign to rush out and away from the market. The rationale behind this move is the belief that it is better to be safe than sorry, and that a dollar saved is a dollar earned. We see such a reaction in the form of panic-selling, when risk-adverse investors take to their heels at the slightest sign of trouble.
There are, however, those who believe that an economic turmoil is a signal for them to work their way in, following the belief that crises are often opportunities in disguise. It is in times of uncertainty that the “gems” are sold at a discount, and buying when others are selling allows one to gain a tremendous profit when the market recovers over time. For such investors, the key to tapping into this uncertain market lies in identifying when the market will turn, and what the right investment instrument will be.
What most people forget, however, is to ask whether you are even in a position to invest. The basic questions: “Are you financially ready to invest?”, “How do you determine if you are financially ready to invest?” and “ What have you done so far to gauge your financial readiness?” are furthest from their minds.
How To Determine If You Are Financially Ready
Determining your financial readiness is not merely estimating how much you have in your bank accounts. There are 3 barometers of financial health that you will have to check yourself against: Personal Income and Expenses Statement, Personal Net Worth Statement and Financial Ratios.
Only when you systematically review your finances in greater detail will you be aware of your readiness to invest in the future. Let us go through the 3 barometers so you will be more aware of what they are and how they can give you an idea of your where you are financially.
How Much Do You Earn And Spend?
Firstly, in order to establish your financial standing before you start any investment, you should be able to keep a good track of the money entering and leaving your wallet.
You can achieve this through a personal income and expenses statement, a tabulation of your monthly income and expenses. Income is classified under money inflow, while expense is categorised under money outflow. Besides your salary, income can also be drawn from sources like: interest from deposits, rent from real estate or dividends from investments. Expenses are what you spend on that eliminates money from your pockets. Examples of expenses are: car loans and utility payments, travel and entertainment costs and credit card payments.
Someone who is financially sound will have greater money inflow than outflow – when you choose to invest, you are creating an income stream that can serve you in the future.
With that said, it is important that you keep tabs on your income and expenses statement at every point of your life to ensure that you are not on the wrong track of your finances.