Learning Personal Finance With Investment Clubs

If you are someone who would like to know more about investing, joining or starting an investment club can be a rewarding and educational experience. Many people feel more comfortable about learning about investing with other average folks when compared with talking to an "expert".

Is it a good fit for you?

If you have been putting off learning about investing and setting any money aside, the discipline of a club could be ideal. Many people join a club to have a group that they can talk to about investing and apply what they learn to their own portfolios. If you have $20-$50 a month to set aside and invest through a club, you might find membership is for you.

Even experienced investors use a club to gain information about stocks that they do not have the time to research. Many hands make light work. All members benefit from the work of other members. Work? Yes you need to contribute more that cash. Don't think that you can take a free ride. The pooled account may not be significant when compared to your 401(k) but everyone has a stake and needs to commit.

How Do These Things Start?

Groups of friends, neighbors or co-workers start talking about investing and find that a starting an investment club is the next step. Setting up a club takes some work but the National Association of Investors Corporation (NAIC) has all the information you need to get started.

How Do They Work

Successful investment clubs focus on learning as well as investing. Guest speakers, like a local broker or investment analyst, may be invited from time to time. Most people join a club to explore new ideas and discuss investing issues. In the early sessions of a club's life, education might be very introductory, covering how to read a balance sheet, an earnings report and the club's financials. Soon the club might be learning new ways to value stocks or discussing a book about Warren Buffett.

Clubs Are Work: Why Not Try a Money-Free Club?

Many clubs have fallen by the wayside when members realize that the time involved is significant. Often the treasurer feels this first. Because of this, groups that want to get started but are a bit intimidated at the paperwork, try a "money-free" club.

Some money-free clubs will focus on education only. Others will set up fantasy portfolios on a web site and buy and sell and do all the work, but with no real money in.

Advantages

• No monthly contributions.
• No need for a treasurer.
• No accounts to keep and taxes to pay.
• Great for people who are hesitant to commit to a regular club.

Disadvantages

• People often lose their discipline if they're not bound together by pooled money.
• Often people take a money-free club less seriously.
• It's less fun and exciting for some people, if there's no real money involved.

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The Importance of Learning About Personal Finance

There are a number of different reasons as to why a person should learn about personal finance, but it is perhaps understandable that most people can not see these reasons for themselves. Personal finance is a difficult topic to learn about and for that reason a person just naturally tends to shy away from it, making excuses in an attempt to avoid having to learn about it. Well, personal finance is extremely important and here are some reasons why.

Money Flow

If you understand personal finance, then you will understand your money flow a lot better. There are a number of people that muddle through life paying their bills and their mortgage payment with the money that they have and then spending the rest of it or maybe letting it sit in their bank account. These are people that have no idea how personal finance works, so even if they end up making the right decisions they are doing it through luck.

While there is nothing inherently wrong with this particular approach, don't you think that you would feel much better if you knew exactly what was going on with your money flow? The old saying is that knowledge is power and if you know about your money flow, you arguably have the most important individual power that exists in the world today.

Uncertainty and Fear

Human beings as a species have an irrational fear of uncertainty. In this respect, we are no different from any of the other mammalian species walking the planet, because all of them have been conditioned through thousands of generations of being eaten and killed to be afraid of what they don't know. Uncertainty and fear therefore go hand in hand and when they do this in relation to something as important to your basic survival as money, the paralyzing effect that fear can have on you is something that is not even pleasant to think about.

Compare this situation however to a situation where somebody knows about how their money flow works and understands their entire personal finance situation. This person is not a person that is likely to be afraid, since there is no uncertainty involved with their financial situation. It is a lot easier to be afraid when you have no idea where your money is coming from and where it is going.

Utilization

If you truly understand personal finance, then another thing that you definitely should understand is utilization. A person that does not understand or appreciate personal finance is a person that is unlikely to save a lot of money, instead spending whatever they happen to have left after monthly expenses on entertainment and impulse purchasing. While there is nothing wrong with being a consumer on this level, it is something that might hamper you later on in life when your income begins to dry up and you realize you have no prospects on the horizon.

If the person does not spend a lot and does not understand personal finance, the same thing could happen. While the money in your bank account is available to you instead of having been spent on something impulsive, it is still not being utilized to its fullest extent.

Only a person with an understanding of personal finance would know that money being saved should at the very minimum be placed in a high interest savings account and later on should also probably be invested in things that yield a much higher interest rate. This difference in understanding and ultimately in utilization comes specifically from an understanding in personal finance.

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