Whether you are a businessman, stock trader, investor or gambler, understanding the risks being taken with your money and by your decisions is critical.
Individually, a trade or investment can seem to be sound and based on logical principles. This should stack the odds in your favour and hopefully the profits will follow.
However, many newer traders and investors dive in before getting their own financial basics right. When money is tight and an investment 'has to work' is often the worst time to make it.
Why?
Simply put, the outcome of that one trade might cause a domino effect of problems if all does not go well. Losing the money may have many unintended consequences which were not fully thought through.
It is vital, therefore, that a new investor or trader has money set aside in case of an emergency. This will mean that if some unexpected event unfolds in life - as they do - the investment or trade will not be influenced. Being forced to end an investment early at a time not of your choosing because of other cash flow considerations can be a very costly experience indeed!
How do I know this? One of my own first investments went horribly wrong and cost me terribly. Though I lost the majority of my investment in record time, it did buy me prudence for many years to come.
That prudence in my personal finances enables me to take investment positions on a strictly investment basis. If it goes badly, that was my own fault and not the result of an outside influence. This is how it should be, and how every trader should operate.
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