5 Questions To Answer Before Allocating Your Money Into Financial Trading & Investments

One of the things that elders, experts, and almost anyone advise young professionals is to handle their money well. They’d always say to save money in a bank or invest in financial investments to grow your funds. It is one of the pieces of advice you’ll often hear people say when they find out that you’re earning well. 

But even though you hear that advice anywhere, choosing a financial investment where you can allocate your hard-earned money is still challenging. It starts getting harder when people recommend putting your money in a trading or investment you don’t even understand. Of course, people who are telling us these things don’t mean to harm. Instead, they want us to handle our money well and put it on the right platform to grow. 

Some might advise you to start forex trading or buy stocks of a massive corporation. Hearing other people’s success stories from forex trading and buying stocks can be tempting to do the same. However, you should first have a thorough conversation and understand yourself before doing so. Because once an investment or trading fails, you won’t get your money back anymore. 

That’s why being critical and wise about your money is a must. If you’ve been planning to allocate your hard-earned funds, this post is for you. Here are questions to answer before putting your money into trading and investing. 

1 – Am I willing to lose the amount of money I’m planning to trade or invest?

First, ask yourself, am I willing to lose the money I’m planning to trade or invest? It’s critical to understand that there’s no guarantee that you’ll have your money back in trading or investing. Since both markets are changing daily, they can’t promise to give back the money you’ve allocated in the same amount. 

If your answer to this question is yes, then keep going. But if you’re not confident about losing the amount you’re planning, maybe you can consider decreasing your budget. You can also look for another financial investment that has a lower risk. 

2 – Do I already have the money I plan to invest, or not yet? 

One of the mistakes many people make is using and spending money they don’t have yet. Most people carelessly say yes to an offer without thinking about the money they need for it. If you don’t have the amount of money you plan to invest yet, don’t push through with it. 

Here’s a tip. Only spend money you are willing to lose and one you already have. Avoid borrowing money that you’ll only use to trade or invest. Again, the trading and investing world have no guarantees. So don’t put yourself in risky situations by using the funds you don’t have yet. 

3 – Do I have enough money in my emergency fund or not?

Now, before allocating your money to something you don’t fully understand yet, ask yourself, do I have enough money in my emergency fund? If your answer is no, I wouldn’t suggest allocating your money to any of those two. Instead, grow your emergency fund first.

Now, what is an emergency fund? People call the funds you save for unexpected financial needs such as accidents, loss, or illnesses an emergency fund. It’s like your personal savings that you’ll only use for a rainy day. You’re not to use it for your luxury wants, only for unwanted scenarios where you need cash. 

If you haven’t started building your emergency fund yet, I suggest prioritising it before trading or investing your money. That way, when a misfortune happens, you have a safety net that you can use. In short, you wouldn’t have to worry about where to get the cash for your expenses. 

4 – Where do I plan to allocate my money?

If your answer to question three is yes, and you’re ready to trade or invest your money, it’s time to answer where you’ll allocate it? Today, there are many options where you can put your money and hopefully make it grow. But the problem with having many options is deciding which one to choose. 

One tip from the book Rich Dad Poor Dad about investing is to choose something you like. The author of the book, Robert, says if you’re interested in something, you’ll take care of it. If you’re interested in forex trading and loves to monitor the changes in foreign currency, maybe it’s the best stream for you. 

Or maybe there’s a start-up company you’ve been eyeing for years now and want to invest in them. Whatever stream you choose, make sure it is something you care about so you can manage it well. 

5 – Do I understand my chosen trading/investment stream–or do I need to hire a financial adviser or an investment manager?

But of course, I understand that not everyone has the luxury and time to manage their investments personally. The same goes for people who still don’t have enough understanding of how their chosen financial stream works. With that, ask yourself, do you need to hire a financial adviser or not?

If you’re still having difficulty understanding how your chosen stream works, it would be best to have a professional guiding you. Aside from having a financial adviser, you might also want to work with an investment manager to manage your portfolio on your behalf. If you don’t have the time to learn about your financial streams, having professionals who’ll assist you is the best option. 

Have an honest conversation with yourself before mindlessly allocating your money to something you don’t understand.

Hopefully, the five questions I shared will help you allocate your hard-earned money wisely. As you assess yourself, remove the thoughts and hopes of growing your money quickly. Investing money is a mix of disappointments, excitements, and hope. And most of the time, it takes years before you see evident earnings from your investment. 

So before you dive into the rabbit hole, make sure to ask yourself these questions. These will help you avoid being in unpleasant financial situations. 

About the author:

Bianca Banda is a writer for FP Markets, one of the best regulated Global forex brokers with over 40 global industry awards—and counting, making them the trusted trading broker by many.