Under no circumstances would you plan to make an investment where the loss could equal the entire amount. For this reason, you need to have an insurance plan, loss protection strategy and exit plan in place for every investment. It is not prudent to assume that because historically something has increased in value over the long-term that history will repeat itself. Always make a personal decision and implement a plan for when, how and why you will sell your investment.

Why? While there are no guarantees, if your only plan is to hold for the long-term, you are sure to either lose money or lose sleep at some point during the life of the investment. When you decide how much you can comfortably risk losing, you maintain control over the process and confidence in your overall financial situation.

Cluing in to Debt: A judgment that says that consumer debt is bad will not inspire change or motivate you to reduce it. While this is certainly the desired outcome, very few people are motivated to move away from something. We are all far more motivated to move towards something that inspires us. When looking at your debt such as your credit card debt or consolidated loans, these can provide valuable clues about the income of your desired lifestyle.

How? By totaling your consumer debt and dividing it by the approximate number of months you took to accumulate it, you will have a number that represents the cost of your real lifestyle. You then have three choices: increase your income by that amount and more, decrease your expenses by that amount, or a combination of both.

So much of personal finance is approached from a vertical perspective: accumulation of a pool of assets. This approach requires decisions that emphasize rate of return, amount saved, fees, taxes and minimizing expenses so there is more money to accumulate. This focus essentially says stockpile a mountain of ‘gold’ for the future – be careful when you get there because now it is all you have and you ‘cannot afford to lose it’. Unfortunately, with this approach, there is always an underlying fear of not having enough or of running out. Because the accumulation is for a date off in the distant future, there is a disconnect to basic human nature, which places more importance on things that are immediate and tangible.

What is the most effective angle for personal financial planning then? It is simply a 90 degree shift to a horizontal view. This approach will connect current income and expenses to ongoing income and expenses that cover a lifetime. It is a subtle difference with a significant impact in your overall thinking. Every financial decision, whether it’s to spend money on necessities today, or making an investment or lending decision with future implications, will connect to an immediately tangible and relatable number – the monthly income you currently use and the monthly income you require to support your lifestyle in the future.

A simple notebook and pen is the best financial planning and tax management tool you can have. With every single purchase or financial transaction, make a note of what you bought and its purpose. For tax purposes, it is far less stressful to take ten seconds at the time of purchase to write on your receipt than it is to try to remember the details when you are preparing your tax information.

And, when you have questions about terms, strategies, and other financial matters, you can record them so you can find someone or someplace to have them answered later. You can also use your notebook to write details about items you have seen while shopping and ideas you have that can be explored for possible income generating possibilities.

Investing is getting your money working for you. Saving is parking your money for a specific purpose. Pay attention to how you refer to your financial vehicles. Are they ‘savings’ or are they investments? Investing has immediate benefits as well as supporting long-term financial independence. Saving will ensure you have adequate cash for a particular expense at some nearer term date such as to save for school, a holiday, car, down payment, shopping trip, etc.

Whenyou are deciding what to do with your money, start by using the terminology that adequately describes your goal. If it is a short-term specific item, your goal will be to maximize the interest on the money you are setting aside. This is very different than putting your money into an investment vehicle where it will produce immediate and ongoing income as well as potentially increase in value. Investments require more due diligence, risk and return analysis, and professional guidance than passive savings.