Personal Finance For The Trader: Are You Leaking Money?

personal finance
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Personal finance is one of the most important aspects of professional trading. When your trading is your sole source of income, or even part of your "side income," you need to make sure you are keeping tabs on every penny you spend elsewhere. Sure your spouse may have a job to bring in money - that's great - but your income is going to fluctuate.

For the stock/option trader, a firm understanding of your own personal finance is extremely important. Some traders simply dismiss this aspect when trading. They blindly assume that if they make a profit on a trade then they are doing just fine. They never consider commissions, Internet costs, newsletter service fees, margin interest, etc.

Are You Leaking Money?

I probably made you think twice with this statement right? It's a great question to ask yourself...

Am I tracking all my money each month; inflows and outflows. Are there any leaks I need to plug up?

The fact is that just like an unseen pipe leaking water - most people do not see or understand how their current trading system is leaking money. But as always, it's important to start now by looking over everything one more time to check for leaks.

I've Personally Seen Thousands of Dollars Wasted

Over the last 4 years I've probably coached over 150 students off and on. Sometimes I get to help walk them through a new system for trading. In the process I have seen hundreds, or even thousands of dollars being poorly spent and wasted. Most of the time they just don't see it happening or don't realize that it is easy to fix.

People are leaking money when they are not controlling where it goes. They just accept fees they assume they can't change instead of actively looking for lower commissions or newsletter services. Leaking money also includes being manipulated into buying $900 programs online or going to pointless day long "guru seminars." It's just plain stupid and you probably already knew that if your still reading.

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How Do We Fix Our Finances?

The simplest way to plug your money leaks is to follow an organized system and budget. Yes a budget! Use whatever software you like, Mint.com, Excel, or Quicken. Whatever you use, just figure out where money is going each money and how it's coming in. Understanding and then managing the difference between these two totals are the first steps in plugging money leaks. Sounds simple but people rarely do it.

Here are a couple areas to consider and target for your new found financial budget:

  1. Commissions - Trading commissions are your #1 consideration and cost. You can't make money without incurring some sort of commission so you had better look at every broker. Each broker is different and you have to consider your account size and the number of trades you make each month into consideration.
  2. Margin Interest - Some stock traders naturally think that buying on margin is free money. How crazy! Margin costs you interest that the broker will charge for the use of their money. Figure out how much margin will cost you based on your account size and make sure your profits cover the spread.
  3. Newsletter Costs - The growth of trading advisory services over the last 2-3 years is huge. I consider our service to be one of the earlier sites in the area. Regardless, the cost of some of these services is astounding! We have a flat rate (and have always had a flat rate) of just $20 per strategy. Some sites out there charge $99 or higher per month and have less profitable track records than we do. Either way, it's something you should consider.
  4. Knick-Knack Spending- This is danger area #2 for most people. This is all of the things you DON'T need but continue to spend your money on. Everything from new cars and clothes to pointless magazine and newspaper articles. My wife and I drive 10 year old cars, we still live in a small place that we bought, and we don't eat out. Again, I'm not telling you how to live your life by any means. But these are the sacrifices that we decided to make so that we could do what we love and not work typical day jobs.

What are some tips/tricks/advice you can offer on your own personal finance?

About The Author

Kirk Du Plessis

Kirk founded Option Alpha in early 2007 and currently serves as the Head Trader. In 2018, Option Alpha hit the Inc. 500 list at #215 as one of the fastest growing private companies in the US. Formerly an Investment Banker in the Mergers and Acquisitions Group for Deutsche Bank in New York and REIT Analyst for BB&T Capital Markets in Washington D.C., he's a Full-time Options Trader and Real Estate Investor. He's been interviewed on dozens of investing websites/podcasts and he's been seen in Barron’s Magazine, SmartMoney, and various other financial publications. Kirk currently lives in Pennsylvania (USA) with his beautiful wife and three children.