Next, use a goal-based investment approach. Bhaskar Prabhakara, co-founder and CEO of WeInvest, an online wealth management platform, says, “Divide your savings goals into investment pots for each of your potential emergency expenses.”

You’ll want to save enough to cover at least six months of living expenses. This gives you a buffer to pick yourself up, especially if you’ve lost your source of income.

“Don’t make excuses for not saving, like telling yourself that you just aren’t disciplined. Make your emergency fund a priority, no matter what,” says Anna. “The anxiety and stress that come with an unforeseen crisis can be minimised by this small effort.”

To turn things around, start tracking exactly where your money is going, and how much you’re spending on each item.

Cut down on indulgences you can live without. Weiping recommends this exercise: list all the items you spend on each month and identify one to remove from the list. Consider what effect removing it will have on your lifestyle. Repeat this with every item on the list until you’ve figured out which expenses you can do without.

If this process is too tedious, you may want to engage a financial advisor to help you. Bhaskar suggests using an expense analysis tool to better understand your fund outlooks and expenditure patterns so that you can allocate your money wisely. The tool also keeps track of your bank account transactions, so you see where your money is going, as well as your total in investments, loans or credit at a glance.

Your Age. If you are young and have a good salary, you might have higher risk tolerance. In other words, you might be more willing to invest in high-growth stocks that pose a higher risk.

Your Temperament. If you feel a lot of additional stress from the high risk involved, then the investment does not suit you on an emotional level. “Investors who are under stress are more likely to make bad investment decisions,” says Anna.

Your income and spending. Review your expenses, income, assets and liabilities. “Your personal balance sheet will help determine how much you can allocate to investments each month,” says Anna.

Next, determine your risk profile, or how willing you are to take on a financial risk given your phase of life. With any kind of investment comes a certain degree of risk. Compare the expected returns of each investment to the amount of risk undertaken to figure out what you’re comfortable with.

Called the risk-to-reward ratio, divide the amount of money you’d stand to lose if the price falls by the amount of profit you expect to make when the investment is closed out, explains Anna.

If you get a low number, you don’t like risk, and vice versa. Once you know your risk profile, you can then put together an investment portfolio that works for you.

Read Next

Smart Money Advice From Financially Successful Women

5 Ways To Keep Calm & Prepare Your Finances For The Economic Fallout Of Covid-19

10 Free Budgeting Apps To Help Manage Your Expenses & Save Money

 

Text: Simply Her