Failure to earmark your money in advance could prove disastrous, because without a monetary plan you may find yourself inappropriately allocating money to the wrong purpose. Again, investments are only one portion of a good financial management plan that should also include
- Determining income
- Determining expenses
- Amassing savings
- Paying down debt
- Reviewing your credit report/establishing credit
Think of your plan as a budget. Although the word budget in itself is distasteful to many people, a budget can be used to make life a lot easier, rather than more constrained. A budget is nothing more than determining how much available money you have and the total of all your financial commitments.
By knowing this information in advance, you can decide how much of your available cash you wish to allocate to savings, expenses, and debt. Doing this ahead of time will make your life easier since no unpleasant surprises will arise later on that you must handle.
Once you've decided how to allot your money, you can determine how much of your disposable income is available for investing. Again, by planning ahead, you avoid placing yourself in uncomfortable financial circumstances later on.