Trader's World

#Psychology

Money management 101

Looking at how people manage their personal finances can tell you a lot about them, their approach to life, their mindset and so on. That’s why to be a confident and successful trader, you need to manage your capital skillfully. This will bring you clarity and calmness – two of the things that shape your market performance. So here are a few ways to get back in control of your money:

1. Start tracking

All your expenditures, and income. Anything coming in and out. It will give you an idea of what’s necessary and what isn’t.

2. Be sensible about your money

Try not to give in to compulsive buys. Spend sensibly and frugally. If you’ve lived without something for a long time already, it probably means you don’t actually need it that much.

3. Don’t rely on trading profits to pay your bills

This is how you get into debt. Trades can go south and you can’t control that, so you need to have a cushion that will still pay your monthly (mandatory) bills. Better to figure out a regular income (job, side business etc.) to just cover the bills. Fixed expenses require fixed income.

4. Building a security layer

As we all know, nobody can say what the market will hand you month in, month out, so you have to be prepared for any outcome. Especially the bad ones. The rule of thumb is – have a layer of ‘fat’ that will cover 6 months of your monthly expenditures. This will put food on the table and pay the mortgage until trading gets back on track (especially if you don’t have any other source of income).

5. You win – you buy. You don’t win – you don’t buy

It’s as easy as that. Of course wanting things ‘for yourself’ is always fun and makes life much more interesting, but you need to be sensible. Don’t dip into savings for something you don’t really need.

6. Let your money compound

One of the fastest ways to allow your money to grow is leaving it in your account and let it compound. Do some research and you’ll see that you can get a nice return on your investments this way.