The Most Important Investing Question To Ask…

If you’re like most people, you probably made a few New Year’s resolutions at the start of the year. In fact, we’re willing to bet your resolution was to either eat better or exercise more. We’re not psychics, by the way. It’s just that studies show those are the two most common New Year’s resolutions.

Aside from health and fitness, the Journal of Clinical Psychology notes that financial resolutions rank No. 3 on the list of the most popular promises people make to themselves each year. Sadly though, the journal also notes that only 8% of people are successful in achieving them. Most fail fairly quickly.

We bring this up to ask an important question — one that we rarely ask readers (but probably should)…

Are you investing enough?

Do A Simple Budget

It’s an honest question. And you don’t need to undergo some sort of financial crash diet to figure it out. All you really need is a basic household budget and a little time around the kitchen table with the people in your life who spend your money.

Budgets are like balance sheets. They’re pretty simple, but seem to somehow scare people silly. It’s not the list of expenses that makes people uncomfortable; it’s the “other” number that makes them weak in the knees — their income. People just hate to stare that number in the face.

Chances are you think you’re underpaid. We can worry about that later. Why? Because even with a larger paycheck, most folks end up falling into the same bad habits. It’s called “lifestyle creep”.

Get a promotion at work? Most people end up buying that new car they’ve been eyeing rather than paying down debt. And therein lies the problem. So here’s our advice: don’t focus so much on what you make.

Take out a sheet of paper and add up what you spend (be complete and accurate, or it doesn’t count).

If you’re blowing $12 at Starbucks every morning, it’s time to reevaluate whether that double-shot mint latte is really worth it. Yes, it’s only twelve bucks, which most of us can regard as nothing. But it adds up to more than $3,000 over the course of a year, and that’s something. In fact, that really starts to grow over time when the miracle of compound interest kicks in.

Yes, the Starbucks example is a bit of a cliche at this point. But it’s still important to consider your spending. Be honest with yourself. It could be your cellphone plan, your streaming video subscriptions, even your car payment.

Discretionary Vs. Non-Discretionary

Now, we don’t talk much about personal finance around here. We normally spend our time looking for investments — either safe, reliable income payers or more aggressive growth picks. We even touch on short-term trades and options.

But getting the most out of your personal budget is important. And it’s something worth touching on from time to time, if only briefly.

What you ultimately need to find with your budget is your total non-discretionary spending. This is what you must spend to keep your household running, and it should be subtracted from your monthly take-home pay.

The rest is discretionary income — funds you can do whatever you want with. Maybe that’s new clothes… maybe it’s an annual vacation… it doesn’t matter. But after you make out a budget, ask yourself this:

“Am I really putting away enough money to invest and reach my long-term goals?”

Some people go so far as to put investing in the non-discretionary category. Others leave it in the discretionary column. It really doesn’t matter where it gets listed so long as you’ve thoroughly considered whether you’re socking enough away.

Fact: You will never see an individual or family go through a round of budgeting and NOT find they could spend less and invest more. It boils down to priorities. The occasional splurge is just fine for most people. But what if your top financial priority was ensuring you spend as little money as possible so that you could invest? What if that was your way of life?

We’re not saying you should do the same. We’re just saying it’s worth thinking about.

Closing Thoughts

Our advice: If you haven’t already, make a household budget based on three months of spending data. Write down your spending priorities, and seek to right-size your monthly allocation to your investments. You may be surprised by what you see.

We’ll even take it a step further. Longtime readers know that we’ve recommend an 80/20 approach to your portfolio in the past. Put 80% of your money in to safe, conservative investments (like an index fund, blue-chip stocks, or safe dividend payers).

Then take the other 20% and really go for it. One option could be the kinds of investments Nathan Slaughter will be covering in his new premium service, Takeover Trader.

As Nathan will tell you, we’re sitting at a unique moment in the history of the market. The fallout from the coronavirus pandemic has left some companies struggling for cash, while others are sitting on a massive war chest. And he predicts they’re ready to start putting it to work in the coming months…

And thanks to a 6-part screening tool, Nathan and his team will be able to identify the latest takeover targets before the rest of the crowd catches on, leaving his followers with triple-digit gain potential. Sure, we’ll miss the mark now and then, but all it takes is a few blow-out winners to make up for the occasional stinker. Do that, and you’ll be head-and-shoulders above the crowd.

If you’re interested in learning more about Nathan’s screening tool, and how it could deliver outsized returns to your portfolio, we’ve put together a briefing you can access right here.