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Investing 101 – Part 1 – Begin With The End in Mind

My first rule of good investing  comes from the well-known management consultant,  Stephen Covey.  In his book,” The Seven Habits of Highly Successful People”, Stephen Covey urges us to “Begin With The End in Mind.”  This is his Habit #2.  It is and is based on imagination–the ability to envision in your mind what, at the moment, you  cannot see with your eyes.   Covey talks about the principle that all things are created twice:  First they are created in your mind and then they are created in the physical world.   The physical creation follows the mental, just as a building follows a blueprint that has been developed.

If you don’t make a conscious effort to visualize who you are and what you want in life, then your investing results will suffer.  I have found that those who have a really clear picture of where they are headed in life and understand why they are investing have a much higher success rate in sticking to their investment plan.

Define or refine your life  goals.  What do you want out of life?  I think that a big part of financial planning is to help people determine what they want out of life, and then establish financial objectives that will facilitate their ability to achieve those life goals.  Money becomes the catalyst instead of the goal.  Don’t get drawn into the vague generalities of a comfortable retirement, an education for your children or travel abroad. When you know what you’re working toward, you’ll be more committed to investing for those goals.

I strongly suggest that the first page of your investment plan be a really clear picture of your life goals – a statement of the things that are most important to you in life and the things you want to accomplish with your investing.  If these are clear, the actual investment planning becomes much clearer.

Here are some of the questions that document should answer:

  1. What are the most important things that I want to accomplish in life (note necessarily financial)?

  2. What do I want to do in the area of philanthropy?  How do I want to use my resources to help others?

  3. Are there people in my life that I want to help financially (college for children or grandchildren, etc.)?

  4. Are there things I want to do in terms of leaving a legacy?  Do I want to leave money to my family or to a charitable organization?  Are there non-financial aspects of a legacy that I should be working on?

  5. When do I want to achieve financial independence (where I have enough resources that I don’t need to work if I don’t want to)?

  6. How much annual income will I need in the financial independence stage of my life?

  7. Is there debt that I need to get rid of?

  8. Are there any big purchase coming up in my life (in the next 50 years) – weddings, graduations, new car, new house, family vacation, etc.?

  9. Etc.

The format of this doesn’t really matter.  What matters is that it is done and that these goals are written so that you can see them and refer to them regularly.

One  tool that you might find useful in doing this is the set of questions that included in my blog entry last week:  New Years Questions – An Exercise to Begin 2012 ( ).  They are questions that make you think about what is really important to you.

I welcome your feedback.

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