The price fluctuations in market is mainly driven by the feelings of fear, excitement, & also by rumors or popular news related to companies future growth. These information pulls their prices up, sometime without much logic. The reason being that there are so many investors/ traders playing in the market who do investing just like gambling. In order for qualified investors to minimize their possible losses due to this unnecessary price fluctuations it is better to create a diversified investment portfolio.

Qualified investors always have their investment plan ready before going ahead with investments. This will ensure a steady growth of their investment portfolio over a period of time.

Irrespective of the fact that whether you are qualified or a novice investors, investment diversification is one common tool that will protect your investment portfolio from the wrath of short term price fluctuations. The principle of investment diversification will ask the investor to invest in multiple shares (in small amount to start with) instead of putting all your money in one company (All eggs should not be in one basket). Investment diversification will give a balance and stability to your portfolio. Creation of balanced portfolio is also not easy, the trick if to buy stable companies (with large market cap.) of non realted sectors at bargain price.

Have a happy and safe investing by creating a well diversified investment portfolio.

You can also read …Top 10 investing tips of Warren Buffett

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As per the concept of Efficient Market Hypothesis (EIH) one cannot beat the market unless they are too lucky. According to this theory the market price of stocks carry with itself the worth of its related news. If company has reported increase in Earning Per Share (EPS), the market price of that stock will immediately adjust itself (rise) to complement the rise in earning and vice versa. Hence the result it is not possible to beat the market. But according to getmoneyrich team this theory has weight but this is also a fact that stock price takes time to align itself with the news. It depends how big is the news. If all TV channels have covered the news and all morning daily has covered the report you can more or sure that the stock price will align itself within couple of trading hours. But it the news is not so well covered and the changes in companies happens like hush-hush (which is mostly the cases) you can expect to have at least a weeks time to take advantage of the news. So keep tracking shares, develop your own ways of evaluation, learn reading financial statements and you can be sure that at least 75% times you will be able to beat the market. You can improve on this percentage if you know how to analyze market price of stock by fundamental analysis. The point I am trying to make here is that, even if some says that the market is very efficient (as per EIH) but still ignoring market price is not something that getmoneyrich will advice prospective stock market investors.

I would like to highlight this fact to my readers that dividend income cannot be taken for granted. This is where the value investing concepts of Warren Buffet comes very handy. As people might know that Warren Buffett have special inclination for mature blue chip stocks and there is reason behind it. These blue chip stocks allows investors to take advantage of possible ‘high dividend consistency’ and also ‘stock’s market price stability’. But a combination of dividend-advantage and market price yield, gives rise to an investment-euphoria producing the best earning potential in form of high dividend yield. So if an investor really wants to make maximum of their dividend focused investing then they should never forget the possibilities to maximize the dividend yield.

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The financial crisis of 2007-2008 was really bad

In this phase of economic turmoil common investors unnecessarily lost huge money simply because they didn’t knew the basic of stock market investment. But why? The reason is simple and foolish, when the stock market was at its peak in 2008, people pumped in more money in the system when actually they should have exited. Adding more to the pain, when the market collapsed they decided to sell at huge losses. As simple as that…

A research showed that during the last decade the stock market performance ended with no loss and no gain (considering dividends income), even after 2008 debacle, but the average investors lost billions of dollars.

So what lesson investors should learn from 2008 crisis?

Learn to time the market. Yes?

The stock market will often tell you that it is needless to time the market. But let me tell you this is the only thing that can make your success assured in stock market. How?

The stock market makes huge money when the common investors like you and me make losses. The stock market will often tell you to give them all our money and flow with the stream. It is not wise to time the market. But following their advice will only make you poor and they rich. Actually what these stock market experts are doing is this, they are actually timing the market to perfection (means buying at low prices), then taking our fund and using this money to step-up the stock prices and when prices go up then sell. As these specialists (Institutional Investors, FII’s etc) are big investors when they sell their holding the markets begins to panic (people like you and me) and we also start selling at losses. So never forget to time the market (buy low, sell high).

The important point to be considered while timing the market is, buy when majority is selling and sell when majority is buying.

Common investors like you and me should realize that investing with emotions and feelings are not a good idea. Instead follow a simple trick of timing the market. It needs patience but it is almost a fool proof idea.

During 2007 when everyone in US was buying hoses as investment option taking easy bank loans are dead today under the weight of their load. This was the time when people who had property should have sold instead of buying. Common man who was buying their first property are the worst sufferers. At that time the houses were selling at all time high price levels and surprisingly the banks were issuing loans like cats and dogs. Stay away from such instances in future. Never walk with the crowd during such phases.

It is amazing to realize that even during the phases when the stock market was running almost flat, people would had made money by simple being patient and by timing the market. All the people can do is to look at the numbers. If people is putting their money in shares or mutual funds then it is a time to wait and be patient. When people are selling their holdings and drawing cash from stock market then it is time to buy. It is as simple as this

The world’s greatest investor Warren Investors even harps on following the these two tricks of stock market investment that will let you win majority of your money battles, (1) Learn to value you stocks, and (2) Be patient and time the market

Conclusion

It is not easy to walk against the stream. If everyone is talking about buying an apple it not easy to market an orange. But this is what will make ‘you’ money. Let others play their game as per their limited understanding. You can focus on timing the markets. Remember the important saying:

The important point to be considered while timing the market is, buy when majority is selling and sell when majority is buying

Give it a try and give me your feedback.
Have a happy investing.

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He discovered that most of these parameters were effective in identifying both the stocks and winning stocks losers – the portfolios with the highest market capitalization tend to produce higher returns, and portfolios with the worst values ​​tend to produce the worst performance .

However there were some differences between the different selections.
Price / earnings ratio (P / e) : low price / earnings ratios are more effective to identify large-cap securities, according O’Shaughnessy, this is due to the fact that many small companies are likely to have more consecutive years of earnings growth and therefore probably will have P / E higher. On the other hand, buy stocks with P / E is an idea highest loser from the start, regardless of the size of the company.

Price / equity (P / BV) : low price / equity may be more effective as a method of selection of large cap companies, although it also work with companies to lower capitalization. On the other hand, a high price / equity is usually associated with action-oriented growth, and O’Shaughnessy suggests that a high ratio of per se should not make you give up the purchase of a stock.

Price / cash flow (income before extraordinary items plus depreciation and amortization): low ratios have proven to be an effective filter for actions at high and low  capitalization. High ratios should be avoided unless there are other important reasons to buy, such as a strong growth that can mitigate some risk data from cash flow.

Price / Sales: O’Shaughnessy found that this is a very effective filter for companies of all sizes. Low ratios produce consistently high yields and high ratios are “toxic” and should be avoided.

Dividends: high returns are a very effective filter to select large-cap securities and not fully effective for smaller companies. O’Shaughnessy suggests using this filter for large companies, with strong balance sheets and better known and more consistent operating histories. For small-cap companies O’Shaughnessy warns that high dividends may be sign of trouble.

O’Shaughnessy said that the filters tend to reward value investors who respect them in all market conditions, and therefore are particularly useful for investors unwilling to take risks. Instead warns that shares tend to have high value periods of spectacular performances that often prove attractive to investors who do not give adequate weight to the long-term developments.

According to O’Shaughnessy’s the best approach is to require a stock to pass several filters. He also suggests that a strategy doomed to value works best with large-cap companies. Based on its analysis of the various combinations, recommended what he described as an approach to value ” Cornerstone “, a portfolio consisting of various activities leading to other dividends:

    * large market capitalization (highest average). These companies are less volatile and tend to have many historical operating data, and is more likely to survive in adverse environments;

    * large float - this provides excellent liquidity for investors;

    * cash flow higher than average. This data is used to select potentially weak companies that could cut the dividend, an important filter for a policy that seeks high dividends;

    * which are billed one-half times the average - this data helps to identify leading companies;

    * high dividends - this is the most important value-oriented filter to select companies with high capitalization, although other criteria could easily replace it. This filter should be used after you have identified a list of leading companies using the first four filters. In his analysis O’Shaughnessy select the 50 shares with a higher yield, however, excluding utilities.

This type of portfolio provides good downside protection during periods of downward market, while giving competitive performance when you are in a bull market. For this reason, it is particularly suitable for investors unwilling to take risks.

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In this article we will discuss some key steps for evaluating stocks for investments in Warren Buffett way.

Step1 – Is competitive advantage enjoyed by the company?

Warren Buffett loves to buy companies that does monopoly business in the market. For sure owners of such a company will never sell their business in the first place. But Warren Buffett keeps searching of companies like this and he will prefer to buy companies that does not enjoy 100% monopoly business but shows qualities of one. Being a monopoly business does not only mean that you are the only supplier in the market, but by the careful way of creation of brand name, quality, advertising, service, pricing etc one can achieve the stature of monopoly market stock. Some quick examples are Coca Cola, Gillett, Microsoft, Kraft, American Express etc. Take it from me, all these stocks are owned by out master Warren Buffett.

Step2 – Strong Earnings (Profit) Growth history of company

Not many companies you will find in the market that has reported continuously growing earning per stock (EPS) figures in their financial reports. Uptrend in EPS for last five/seven years is a good first-hand indicator of a well managed business and whose managers are interested in increasing stockholders value. For an investors looking at net-profit figures is not helpful, what is more important for them to see the EPS growth trends. It may happen that profits are increasing but EPS is decreasing. This happens when company is issuing too many stocks in the market (not of stocks outstanding is increasing) and this dilutes the stockholders value. The potential to stocks profits (in form of dividends) among stockholders gets diluted by issuing more stocks. There is only one apple and no of stockholders claiming the stock is increasing. It is very easy to track growth in earning potential of any company, just look at their profit and loss accounts and check the changes in EPS levels. You can see from the below chart that in year 2007 the earning was 85.71 per stock, in 2008 the earning grew to 133.86 per stock but after that it has only gone from bad to worse. In last financial year 2011 there has been some improvement, but overall growth in EPS in last five years is negative for stockholders.

Step3 – How well company is able to manage their debt levels?

You will remember that here what we are talking about is monopoly business like companies. Such companies will never have problems in managing their cash flows. Instead their payment terms will be advance, cash on delivery, virtually no cash hold for performance etc. So these companies are not obliged to resort to debts/loans to manage their cash-flows. The lower will be the debt levels, it means less potential risk for stockholders (in times of crisis) and increasing margins. But do not get this hint from my writing that debt is only bad. If companies (like monopoly companies do have) has great operating margins then may be resorting to the cheaper bank loans will increase their profit leverage. Nevertheless, lower debt levels are always good. It is again not difficult to find how the company’s debt levels have behaved in the past, just look at their financial statements. The most useful figures are current ratio (current assets/current liabilities) which says how is companies short-term financial health so that companies need not resort to large debts. And second indicator is debt/equity ratio which creates a yard stock for investors to compare two companies if one is having higher debt levels as compared to other.

Step4 – How profitable is the company for its stockholders

This is parameter is highlighted by noting the Return of Net-worth (RONW) figures as it appears in the financial reports of companies. Warren Buffett will say that higher the better the business is poised to generate more money for its stockholders. Here again I will request my readers to look at the historical changes in the RONW levels of the companies to understand the trend. Companies Top Managers must do enough to continuously increase and better the valued of RONW year after year.

Companies Net worth is the sum of Equity Stock Capital + Retained Earnings (cumulative). Companies top managers job is to increase/maintain the present levels of RONW. Every year the companies is increasing its retained earnings. It the job of top managers to use these retained earnings for the betterment of companies growth prospects. If these retained earnings are better utilized only then the net profits of companies will increase giving us an increasing value of RONW. The historical behavior of RONW directly hints at its managers efficiency. Sometimes companies use these retained earnings to buy a smaller but a monopoly business which will increase the earning potential if the companies.

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Increasing affordability will have dual benefits. Even though how hard we try but still there will few income class who will be deprived of buying their own home. The way the rental rates of homes are going in metros and second tier cities, it is getting tough even to rent a good house. But by increasing the affordability of house for middle class, number of house that will be available for rental purpose will multiple. This will also drastically decrease the pressure of rental rates.

Some real estate experts have even suggested that even the tax rebate of rental expenses shall be increased. See the vicious loop it is going to create, one one hand the affordability of first time home buyers is increased by giving them higher tax rebates, and on other hand to see that these houses immediately starts generating income (rentals) for home owners, even the tenants will get benefits on their rental expenses. So what we are proposing here is to increase the affordability of people to ‘buy homes’ and also to increase their power to pay higher monthly rentals.

In international market, investors get tax rebate as high as ten percent (10%) of the value of the house. In other terms it can be treated as 10% discount on the total value of house. With this as our goal we would recommend Indian government to increase the tax rebate on interest payment from Rs 1.5 lakhs to Rs 2.0 lakhs. What does it mean? Suppose a person has a taxable income of Rs 6.0 Lakhs. In normal course of events this person will pay approximately Rs 7,000 per month as income tax. But if the person takes a home loan of Rs 15.0 lakhs for fifteen years, first year his interest portion will be approx. Rs 1.5 L. In this case as per tax laws his tax liability will reduce to Rs 3,700. In other words he will save approx Rs 3,300 per month. He can use this saving to pay his mortgages (EMI’s).  But in case the tax rebate is increased from Rs 1.5L to Rs 2.0 L the savings will approx Rs 4,100 per month.

In today’s market the consumer also faces a problem which decreases their affordability to great extent. Suppose a person invests Rs 15.0 lakh is a green field project with time horizon of say four years for completion. After end of four years he has planned that the project will be through and he will put this property on rent for monthly income. But in India delayed real estate project is common. This creates a serious dent in the pocket of investor thereby reducing his affordability. In India almost all investors has only fraction certainty that the project will be completed on time. So this is also another thing that government should look into so as to compensate investors for projects that are delayed. Penalizing developers will not be a bad idea.

At present under section 80C even principal repayment can give you tax rebates upto Rs 1.0L. We will recommend Indian government to consider increasing this cap to Rs 2.0 Lakhs for payments made on principal payment of home loans.

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Investment philosophy of Buffett is unique. It is linked to calculating and analyzing the intrinsic value of shares of companies. The basics behind calculation of intrinsic value is linked to the uniqueness of products of the business, quality management and honesty with which the business is run. The products that common people love are the ones that Buffett likes and buys. Take note that we are not talking about only commodities. Products like that of Apple, Amazon, Microsoft, McDonnell, Coke etc. In short the companies that has the product line and business process which is perfectly understandable for even common man. Lets see some additional investment parameters that are used extensively by Warren Buffett:

Predictable Future Earnings

Earning per share (EPS) can be calculated very easily by reading the profit and loss accounts of a company. Check how the EPS has behaved in last five to seven years. Future predictability will come seeing the volatility of EPS of past.

Debt to Earning Ratio

Companies which are operating with minimum of debts and generating good earnings are the best. According to Warren Buffett companies should keep its debt to its minimum. Thumb rule is debt to earning ration should be less than 5. Which means that company is agenerating enough earnings so that in coming five years it is repaying back all its debts.

Equity should generate enough above average returns

Earnings generated by the company in proportion to its Equity is a great measuring tool for the investors. According to Buffett the average return on equity (ROE) for the last seven years shall be at least 15%.

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Mutual funds gives us excellent service to us by buying long term quality stocks in our behalf. We contribute our money in a pool created by the mutual fund and in turn they use this money to do stock picking for long term holding. It is known thing that picking individual stocks for investment purpose is not easy, and mutual fund companies are experts in careful stock picking. But this service rendered by mutual fund companies to us comes at a price. All mutual fund companies has some overhead expense to provide this services to common investors. Suppose you invest $100 in a mutual fund then (say) 0.5% of $100 will be charged by mutual fund for covering their expenses. This expense is reflected in the declaration statement of the mutual fund company as ‘expense ratio’. The lower the expense ratio the better is for investors. Mutual fund investment gives us long term profitability but if we can minimize the fees charged on account of ‘expenses of mutual fund company’ the better will be our profits.

We must always remember that we are buying equity linked mutual funds for long term profits. We are not buying and selling mutual fund units for trading gains otherwise we would have instead buy direct stocks for more trading profitability. There are some immature mutual fund companies that buy and sells shares of their portfolio to book some short term profits. Such frequent trading of shares accounts for high turnover ratios in mutual funds. As an investor we must be careful in selecting only those funds that has least turnover ratio.

Mutual Fund manager plays a very important role when it comes to profitable management of fund. It will be not be wrong to say that majority of performance of a mutual fund is dependent on the investment skills of its fund manager. It is always good to check the track record and credentials of the fund manager before you buy a mutual fund. Always compare the performance of the fund with its benchmark and you can find if your fund manager has the ability to beat the market or not. If he is able to give you able averaged market returns then better go for index funds (read…investing in times of crisis) where the expense ratio is bare minimum. It is also interesting to find that whether the fund manager himself is investing in this mutual fund or not. It is easy to give advice to others but when it comes to putting your money at risk, it’s a different story all together. Generally an experienced and talented fund managers will also put lot of their money as well in the same fund if they are confident of long term growth prospects of the fund they are managing.

I am a personal fan of value investing. I immediately get attracted to those mutual funds that buy value stocks. If given a choice I will not invest in gold instead I will buy a value stock with long term investment horizon (read…top 10 investing tips of Buffett). According to me gold does not have any value of its own, it is only a speculative asset. But when it comes to shares/stocks they carry inherited value with it which will generate money for you in long term. If someone wants to value gold as $1/ounce tomorrow, I cannot prove him wrong except for the fact that currently gold is trading at $1,800/oz. But share carry value proportional to the fundamentals of its underlying business. So I being a value investor-believer would love to see a mutual fund portfolio full of value stocks. If you are a investors who believes in growth investing should love to see quality small and mid cap shares in mutual fund portfolio (read…build solid investment portfolio). SO investing in mutual funds that has same objectives and goals as your investment objective then that fund is most appropriate for you.

Mutual Funds gives you the opportunity to diversify your investment among several equity class, debt instruments and sometimes even precious metals. I being a value investor (read…value investing tips) would not like to diversify my investments a lot. But for lay investors who does not have so much time to invest in stock research should not take risk of investing on only few related instruments. Instead in order to minimize the risk of potential loss in times of crisis it is better to spread ones investment among many asset class (read…investment options). For a lay man the best bet will be to invest in ‘diversified equity linked mutual fund’ if they are aggressive investors to invest in a ‘balanced fund’ in case of defensive investors. In long term both the funds can give great returns (read…investment portfolio and asset allocation). In order to take perfect advantage of diversification when it comes to equity linked investment best will be to buy an index funds (read…investment options for lazy investors).

Conclusion

Success in investment can come merely by staying focused and disciplined. Mutual companies give us great opportunity to us to invest systematically and get benefits in long term. The objective shall be wealth creation and nothing else. I personally wants to achieve the goal of financial independence in next 10 years time. All of my investments are driven by the concept of financial independence, and each and every share I buy achieves this purpose (read…a story about my style of investing).

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Savings and Investing go hand in hand. Unless you are saving you cannot invest and until you are investing you will end up spending all your savings. This is human psychology and when it comes to money majority of people fall short in effective management of their money. According to me “Saving” is perhaps the biggest bottleneck on the way of a persons travel to financial richness. We are not able to save as much as we should do, the problem is the temptations. We fall prey to these temptations (like LCD TV, Fridge, Mobile Phones, Car etc) and effectively spend all our money. The temptation to spend our money on trivial things is perhaps far stronger than the necessity to save and invest this money.  For common people like us the biggest problem is not about researching about stocks, mutual funds, real estate but about our ability to save and lock these saving by investing. If we will not lock these savings then ultimately we will end up spending everything on trivial liabilities (the punch line of this getmoneyrich.com is to save to invest on assets & avoid liabilities).

So a common man should not worry as much about ‘investing in which stocks’ than about ‘how to save and lock these savings’. Why I say so? Let us see an example: On January 2009 my self and my brother got a gift of $100 each from our parents. Both of decided that we will not spend this $100 instead we will save it so that in future we can use this fund for more valuable work. I decided to save this $100 in my piggy bank and my brother decided to save it in his savings account in bank. As my money was only a step away from me (having high liquidity) hence by the ear end 2009 I end up spending my $100 to purchase a nice wrist watch for myself. At that point of time purchasing a wrist watch was an important activity as my old watch was not working well. But later on I realized that perhaps it was better for me to get my old watch repaired than to spend my savings in buying a new watch altogether. The moral of the story is the more liquid cash you will have in your pocket, more eager you will be spend it on trivial things. Your mind plays games with you when you have too much liquid cash. It will go on creating requirements that other wise you would have easily avoided.

As I said earlier that my brother decided to save his $100 in savings account. This is not as liquid cash as money parked in piggy bank. Hence was able to resist his urge to spend his savings far more than myself, but at the end of the year 2010 he too fell prey to his temptation to buy a trendy shoes (as his present shoes were all worn out – according to him) far more costlier than $100. So the moral of the story is it not sufficient to park your money in savings account as that money also has too much liquidity.

For common investors like us, it is very important to learn to save and to manage the liquidity of our savings. Too much liquidity is bad news. The investment options that we have (like shares, mutual funds, real estate, precious metals etc) are all ways of locking your savings. By locking you are actually decreasing the liquidity of your money (means you do not have lot of freedom to spend is when you like). For this compromise (decreased liquidity) market pays you compensation in the form of interest (or value appreciation). This value appreciation or interest earned is the motivating factor for the investors. Smaller investors like you and me gets so much overwhelmed by this interest thing that we loose the focus of why we are investing? We are investing to lock our savings which in turn pays us compensation. If some body will ask you why you are saving? I sure majority of us will give wrong answers. Believe me, we are not saving to spend it in buying assets, mutual funds, TV, Fridge,  home, cars etc. Instead we are saving to create a portfolio of assets that generates sufficient income to make you financially independent. By Financial Independence we mean you will no longer be required to do a job to earn your living. You investment portfolio (full of assets) will generate sufficient income so that you can manage your day to day expenses. This is very important for we small investors to realize; we are not investing to spend it in future but we are investing to create a investment portfolio that will generate passive incomes for us.

This is the reason why all investment experts harp on the fact that before we even start investing, we must have investment goals properly defined. May be financial independence is a very long term investment goal, but there are other short term financial requirements that needs to be fulfilled as well. Each type of investment goals (long term and short term) has their own specific investment option. Investors must be very careful in selecting the investment options suitable for their investment goals.

So we have already discussed that the process of savings and locking this savings is by far the most important activity of money management. Investors can decide to lock their savings either in investment options that are risk-free or in risky options. If you decide to go for risk-free investment options like (bank deposits, government bonds, debt linked mutual funds, government controlled retirement schemes, national savings certificates (NSC), insurance linked savings schemes etc) there is no worry as returns are almost certain. At this stage as can say that we have achieved three important milestones (which is perhaps 75% of the total work): (1) We are saving, (2) We are locking our savings in investing & (3) By doing so we are earning a compensation in the form of interest income. These risk free instruments give nearly 6% returns in the form of interest. Suppose you have $10,000 in your investment portfolio which generates returns at the rate of  6% per annum. It means in one year the interest income will be approx $50 per month. Now is easier to estimate that in order to become financially independent this interest portion of income shall be sufficient to manage your monthly expenses. Suppose your monthly expense is $1000, in order to increase your interest income from $50 to $1000 (increase it by 20 times) one need to proportionally increase the fund in the portfolio in the same proportion i.e. from $10,000 to $200,000.

The problem with risk free investment options is that they do not beat inflation. As discussed in previous example by the time your investment portfolio increases from $10,000 to $200,000 your monthly expense requirement will also increase from $1000 to $2000 (say). This is the effect of inflation, the things gets costly and your purchasing power is reducing.

This is one reason why so many investors are obsessed with equity investing (risky investments). Equity investing is like shares and equity linked mutual fund schemes. These investment options are called risky because their valves keep on rising and falling in short term. But in the long run (five/ seven years) the trend is generally increasing.  Because people do not often invest with long term perspective they face this extreme price fluctuations which makes their investment very risky. If one wants to invest in equity it is very important to invest for long term.

Another point which is very essential for equity investing is to buy shares of only those companies which has strong future growth prospects and it is available (for purchase) at undervalued prices.

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You’ve probably in your mind the idea that it is because you do not make enough money, but the truth is that for most people, getting or not a millionaire has less to do with the money they get. The key is how you treat money in your day to day life.

There are 10 possible reasons why we are not millionaire and never reach financial independence:

1. We always compete with our neighbors: If you’re competing against them and their material possessions, you’re spending hard-earned money on toys to impress them instead of building your wealth.

2. We show less patience: Before the advent of credit cards, it was difficult to spend more than you had. Not so today. If you have credit card debt because you can not wait until you have enough money to buy something in cash, you are enriching the other as you keep yourself in debt.

3. We have bad spending habits: Whether smoking, drinking, gambling, or some other bad habit, the money invested in it could be aimed for building wealth for self. Most people do not realize that the cost of their bad habits extends beyond the immediate cost. For example: Smoking not only costs the pack of cigarettes purchased, but may also increase your future medical expenses or treatments.

4. We do not have financial goals: It is difficult to build wealth if you have not spent time to know what you want. If you have not set wealth goals will hardly be able to achieve. You must do more to ensure your financial independence. You need to take your time to set the goals of saving and investment on an annual basis and develop a plan to achieve them.

5. We do not plan for emergency: From time to time unforeseen things happen in life with even the most careful person and if you have not prepared for it through insurance, any wealth you have accumulated you can go in an instant.

6. We always want to earn quick and easy money: For the vast majority of us, wealth does not come instantly. It seems to be an ordinary thing that people win the lottery, but the truth is that you have a much better chance of being struck by lightning than to be graced with the lottery. This desire to earn quick money extends to the way they invest, with similar results.

7. We are dependent on others for our money management: Do you think others have more knowledge than you in money matters, and let alone in his opinion the decision of when to invest your money. Unfortunately, most people want to earn money for themselves, and this is their main objective when they tell you how to invest your money. Listen to advice from others to get new ideas, but ultimately you have to have enough knowledge to make your own investment decisions.

8. We invest in things that we do not understand: I heard someone has gained a lot of money doing it, and you want to travel the same train. If others can make money, it was because he understood the investment performance. Put your money on something because someone has made money without fully understanding that the investment performance will keep you out of wealth.

9. We are afraid to take financial risks: You are so frightened by the risk that you leave all your money in savings accounts that actually lose money when inflation is taken into account. Thus, refuse to invest in something more profitable because you’re afraid of losing your money.

10. We fail to plan our finances: I think if we have enough money, we think that the finances will take care of themselves. If we are in debt, we assume that somehow the situation will resolve itself in the future. Unfortunately, it requires planning to work towards securing financial freedom. For the vast majority of people does not happen by magic.

Actually, probably not only one of the above factors that prevent you from becoming financially free, but the combination of a few. Examine the list carefully and think a little. If you want to stop working for money and the money starts working for you, it is within your reach, but you have to face the facts that will be prevented.

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