The Basic Foundation of Financial Independence

Submitted by Stock Market News on 16 May, 2011 - 16:21

What you do first before you trade.

A lot of traders talk about strategies and pitfalls of trading, but all of that isn't possible when you miss a key component. Budgeting is the very core of all financing ventures. Saving up two grand will let you trade, but it won't earn you money in the long run when you don't know how to organise and maintain your cash flow. More importantly, even before you save up, you must have budget plan in hand so that you won't go flat broke when you jump into share trading.

Before you allocate money for trading, look into your budget. List down all your expenses and periodic wage in one year to get your disposable income. This is the money that you have left after all your expenses. Most likely this will be the source of your capital, but its advisable to have a back up savings. Always put money in your savings first (10 percent of your income) and plan for everything that you want to buy or spend on.

Once you have saved the amount your prefer to star trading with, keep tabs on your cash flow. As a newbie you will most likely lose up to 10 percent of your capital. But you can cut down your losses with a trading plan. Separate your capital from the account you use for daily expenses. Do not spend any of your money from your trading account, except to gradually increase you capital. Make your own trading log, document everything and monitor your progress. The rest is all about studying, learning from your mistakes and gaining experience.

Self-discipline coupled with managing your finances, can be quite challenging. Budgeting by itself is easy but how to maintain and handle it is where the difficulty comes in. But it will help you save better and trade longer.