Sunday, 10 July 2011
10 'Rules' of DIY Income Investing
Well, maybe - this is my best shot at boiling it down to the essentials: feel free to challenge my list!
1) Do It Yourself
Don't rely on someone else's decisions or advice. And for heaven's sake don't pay anyone commission. By all means discuss your plans with a professional adviser, for a fee - but if you have done your homework, don't be surprised if you find out that you know as much as them.
2) Inform Yourself
Before you spend any money, research the opportunity, get another opinion - and then another. Be prepared for this to become your main 'leisure' activity (as you won't actually do much buying and selling).
3) Don't Invest if You Still Have Debt
The interest on debt is probably higher than any reasonably safe investment you can find. What is more, you are paying interest with money that you have paid tax on - so it it more expensive than you think. A mortgage is debt (you can still be a bit of a DIY Income Investor while you pay down your mortgage).
4) Think 'Income'
When you invest, seek out the best, low-risk income: get the best 'bang for your bucks'. When you spend money on 'stuff', think: how much would I have to hold in savings or investments to generate this amount of income. Alternatively, think how many hours you would have to work to buy the item.
5) Give to Charity Rather Than to the Taxman
Instead of paying tax unnecessarily, give the money to charities that you approve of. Yes, we all need to do our bit to pay for the necessary stuff the government provides but the reality is the government wastes a lot of it. Avoid tax (legally) where you can but 'give it back' through charity.
6) Be Systematic
You need to have a plan and a system. For example, you could work your way up the Income Pyramid.
7) Be Prepared to 'Get Rich Slow'
Investing for income does not mean quick riches but it should allow you to 'Get Rich Slow'. Seeking a quick return through 'growth' investing leads - more often than not - to losing money. Be patient.
8) Buy 'Right'
The decision to buy a financial security is the crucial point - when to sell is secondary. Don't be over-hasty or invest in a hurry. Before you spend money on an investment, sleep on it. In the morning do a bit more research and if it still looks like a good idea - fine, go ahead.
9) Watch Your Cash Flow
You may need cash for an emergency or to take advantage of an opportunity to buy something cheaply. If you follow the Income Pyramid approach you will keep enough cash and near-cash for most eventualities. Don't have a family cash-flow crisis.
10) Plan to Retire Early
You are not saving for the sake of accumulating money but rather to accumulate years of financial freedom, when you can spend your time doing what you want.
I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.