The logic for organizing your finances
The topic of finances and investments seems very complicated and risky, and many sources want us to believe that, but the reality is much simpler, especially to get started.
I often lay it out in several phrases that build a logical argument that is easy to follow and put into practice. Let's take a look:
- The money cycle is EARN – SPEND – SAVE – INVEST
- Saved money (not invested) loses value over time: inflation is our money's greatest enemy
- To avoid this and combat inflation, we must invest our money
- Investing is buying assets: things that give us a return (more money, more value) over time
- Investing carries risk. The higher the risk, the greater the return our investment should give us
- Investments are compared (and judged) both in value and in time: APR (Annual Percentage Rate)
- To reduce the risk of our investments, it is necessary to diversify them and invest in several different things (don't put all your eggs in the same basket)
- Compound interest (reinvesting the gains our investments generate) helps us grow our money more quickly
- When evaluating investments, we should take these factors into account: return, time, risks, liquidity, required knowledge
If you understand and agree with each of these statements, then we can move to action and make your money work harder for you. The methodology we follow at HomeFinance is governed by the following principles:
- Make a plan (a simple one)
- Invest every month
- Minimize fees
- Diversify
- Simplify
- Buy index funds
Throughout the following posts we will look at these and other aspects in more detail.
And as always, the most important thing is to start as soon as possible…
Leave any comments below if you have any doubts. And if you have any particular topic that interests you, tell us about it.
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