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Money Management: Personal & Trading

Counting Cash Money management is a key part of investing safely.

Why? I'm glad you asked!

The Second Principle of Safe Investing is protecting your money against loss, and that is the point of personal money management; making sure you are protected from losses in your personal finances and trading.

It's a combination of two activities: personal money management and trading money management.

When used properly, it limits the amount of time you spend worrying about money and reduces the impact of mistakes you make along the way. Otherwise, it will seem like your money is managing you; setting priorities, telling you what you can and can't do. And any money you do make (regardless of their source) will end up burning a whole in your pocket.

Personal Money Management

The personal financial management half of money management combines 3 areas:

Most people only discuss personal money management AFTER something goes wrong, but that won't take the sting out of a loss. The silver lining is that "better late than never" also applies, as it is never too late to make improvements to your investing system (Safe Investing Principle #9).

Trading Money Management

The trading money management half of money management combines 2 areas:

Investing techniques often focus on finding an investment instrument (stock, bond, ETF, fund, etc.), but rarely discuss how much money to use. Instead of providing you long term success, you've been set-up for a fall.

Nothing is more frustrating than spending hours and hours selecting the "right" investment, only to watch the market crash (as many investors learned during the second half of 2008).

When you don't practice trading money management, your investing gains are temporary because you ended up putting all your gains into the right investment, at precisely the wrong time.