What is it that gets you excited about investing? Is it the opportunity to make a quick buck, the thought of taking advantage of compound interest in order to retire rich, or maybe the feeling of owning part of a great American company?

Unfortunately, often people get excited about investing their money by the dreaming big. They see companies like Hansen and Google that have created millionaires and their friends talk about amazing profits during cocktail parties. The next day the dreamer jumps in, only to find the party is over and the investment was a poor decision.

I know I’m guilty of getting excited about the potential of huge profits. It’s fun to stop and think, “what if . . .” But it is important to control that emotion and make sure you are not making money decisions based on hope. Investment decisions should be based on the likelihood of winning.

How do you avoid losing and chasing hope? Instead of asking yourself, “how much can I make off this investment?” take the time to consider how much is at stake. What is the potential that could actually be lost in the investment? What is the probability that the stock could go down, the real estate investment not sell or the company go bankrupt? These are the magic questions.

The key to investing is not how much you make, it’s how much you can minimize your loses. In a diversified portfolio you will have some big gainers, some that are slow and steady winners, and a few losers. In a diversified portfolio it is a given that your winners will perform better than your losers over time, so the focus should be on reducing your downside. By doing so, you will be making investment decisions with lots of upside potential, which will naturally accelerate your profits.

When you ask yourself “how much can I lose,” it forces you to really analyze what you are getting into. If you do your homework and answer correctly, you’ll find the opportunities with little downside risk and great profit potential.

Millionaire Money Habit: Don’t let hope cloud your investment decisions. Take the time to remove the emotion by asking what you could lose before diving into something that only makes you see the profit potential. -RT

Here is a list of some of the best articles from my favorite personal finance websites. Spend some time digging through the Millionaire Money Habits archives and the links below to improve your financial literacy and learn how to become a millionaire. 

Spotlight: Are you frugal, or just a cheapskate? Find out by taking Moolanomy’s Frugal Or Cheap test.

Other Great Personal Finance Articles:

• Ten Quick Easy Ways To Reduce Your Debt at My Two Dollars
• What Would You do With A Million Dollars Jim at Blueprint for Financial Prosperity
• The Real Cost of Withdrawing Retirement Funds Early at Cash Money Life
• How to Turn Mistakes into Opportunities at The Dough Roller
• Why You Need an Emergency Fund – A Real World Example at Credit Withdrawal
• Personal Finance is About Freedom – What Will You Do With Yours? at Mrs. Michah
• Want Some Extra Income? Try Odd Jobs! at The Digerati Life

Personal Finance Carnivals:

• Carnival of Personal Finance
• 58th Carnival of Money Stories
• Money Hacks Carnival

Millionaire Money Habit: To help you become a millionaire, you need to perpetually improve your financial literacy. Digest as much information as possible and stick to a plan that works for you. Be sure to subscribe to the RSS feed or by email to be notified of new articles posted here.

I remember the first time I heard somebody use the word “frugal.” I didn’t know exactly what it meant, but by the way it was used I was certain it was a derogatory term and that frugal living was a bad thing.

Eventually I figured out what frugal living meant, but for many years I still felt if somebody was labeled as being frugal, it was a negative connotation. Basically, my thoughts were if someone said, “He is frugal,” you could easily replace “frugal” with “cheap.”

This interpretation of the word is incorrect. Being frugal and being cheap are not in the same category. Let’s look at the literal definitions according to thefreedictionairy.com:

Frugal: Practicing or marked by economy, as in the expenditure of money or the use of material resources. See Synonym: sparing.

Cheap: Stingy; miserly.

Frugality is the act of being resourceful and mindful about your spending, where being cheap is clearly an undesirable personality.

I realized several years later when I started to make personal finance an interest of mine that frugal living is actually a desirable characteristic.

• It means you have the sense not to waste money and be an over-consumer.
• It means you have a grasp on your finances and know how much you can spend with the income you have to work with.
• It means you have the discipline and the smarts to proactively manage your money, create budgets and stick to them.

As a result, this means it is very likely you have the ability to create wealth.

Don’t let others who get frugal living and cheap mixed up bother you, but rather take it as an opportunity to educate them and recommend that they spend some time digging through the great resources at beingfrugal.net. Chances are if someone is using the term with a negative tone, they are not someone who should be criticizing how other people manage their money.

Millionaire Money Habit: If you want to become a part of the ultra wealthy and reach your financial goals, it is necessary to spend your money in the most efficient way. That is, by practicing frugal living. -RT
photo by timparkinson