What are futures?

Many people trade in future contracts. A future contract is a contract to buy or sell a specify quantity of a commodity, financial instrument, or stock index on a pre-specified date in the future. These contracts are freely tradable up to the time of performance on a futures exchange. This is very similar to stock or bond exchanges. There are future exchanges throughout the world and generally, each one is dedicated to a specific type of financial instrument or commodity, for example, a gold exchange or options (stock futures) exchange.

Futures are also known as derivatives. You are not buying or selling the actual commodity being sold, just the right to buy or sell the commodity on a given date in the future. As a general rule, you will not hold the contract till the maturity date unless you are purchasing for business purpose (such as wheat futures for a large bread factory). You will buy and sell the futures trying to profit on the differences in price s for the underlying commodity.

You Invest, I Invest

Does this sound familiar? “You jump, I jump” from the movie of "Titanic". In financial, this is suicide. You can’t practice this in investment.

Many people invest simply because others around them are investing. When you ask them, what do you guys invest? They normally will reply, “Huh? I just know the investment A can earn lot money. Person A already gets $10k return out of it and many people are recommending this investment. Even if you do trust that person very well, try to discuss with him to find out the reason why he says so. In a way, you gain some knowledge too rather than just trust the guy blindly. If he doesn’t know, try to do some research why many people recommend that investment. What are the advantages and disadvantages? Does this investment help my personal financial goal? If I lost in this investment, what is the impact to my personal financial goal? Do all the homework and make your own judgment.

Remember, just don’t practice “You jump, I jump” in investment. It doesn’t work. A good investor doesn’t act that way. Follow them. Do homework!!!

Why do we need a clear financial goal?

One of the reasons why we mess up our finance is we don't exactly know what we want. Do you know exactly what you want? In other words, we do not have a clear financial goal. Without clear financial goal, you will be dissatisfied with where your life is going and how you're using your financial resources’.

I bet 99% of us will have a common goal which we would like to call, "I want to make a lot of money". Well, that is a very rough goal but not specify enough. Your financial goal must be specify. The first question, you may want to ask yourself is how much money I make is enough? The clear financial goal should be something like this: "I have 2 million net worth at the age of 40". Simple? That is long term goal and you have to break it down to short term goals (e.g. investment strategy) to support it.

Without clear financial goal, you are aimlessly in life. Yes, we might have some money in bank but get killed slowly by inflation. Even if you do invest, you will be invest without direction which also a major reasons why many of us mess up with our finance such as listening to the wrong advice, relying on unsuitable advisor, attracted by the advertisement and many many more. That is why it comes to the importance of financial planning.

Goal setting is essential for anyone who wants to succeed in life as what have been explained by he Stephen R. Covey's habit 2 "Begin with the End in Mind" in his book, The 7 Habits of Highly Effective People. If you do not have financial goal now, find a quiet place, think of what do you want to achieve in your finance? It is ok to change and review your financial goal in future. In fact, your financial goal should be reviewed from time to time. The most importantly, define your own financial goal first if you do not have it now and use it to help you to make your major financial decision.