Hard-nosed investors are accustomed to the ups and downs of high risks investments; and they make adequate preparations to absorb the shocks of loss, just as much as they would instantly cash out on a stock windfall. They have high risks tolerance; and as far as they are concerned, that is what being a wealth-minded investor is all about. No risks, no success summarizes their financial philosophy.
At the other end of the line are the safe, low-risk investors. To this group, it makes absolute sense to be financially conservative, which means one is more careful about how they handle their finances and invest their money.
The other argument is that a financially conservative person is typically prudent and will maintain a modest lifestyle in both a good and a bad economy to a considerable extent- even though they may have to slightly reduce spending in a poorly performing economy.
The financially prudent individual develops a solid financial plan, minimizes risks, and focuses on creating a nest egg or saving up for long term goals, such as retirement.
What being financially conservative means
Being financially conservative means that you are hardly ever impulsive or spontaneous with money. Every penny spent is planned- you have a budget and you have created clear goals for your current and future income. Using online calculators for things such as mortgages or loans makes sense for your finances, as it allows you to make a plan.
It does not mean that you are averse to investments or you deprive yourself of the comforts and convenience of life. It means that you are cautious with money and spending, and you do not overreach yourself. You just save up and carefully plan to achieve those goals- even if it takes longer time, but it is a safer route.
Rather than put their money in highly volatile investments such as stocks, a financially conservative person will rather invest in low-risk, low-returns and longer-term options such as bonds, life insurance, annuities, and certificates of deposit.
Are conservative money decisions beneficial or harmful?
It might not be popular or cultural with aggressive, go-getting investors, but proponents of conservative financial living believe that it is the most assured route to building wealth. Being financially conservative adequately prepares one to take care of any emergencies, as well as retire with ease and peace of mind.
But others think that being financially conservative is a poor mindset that goes on to breed a cycle of poverty. They argue that taking little risk means taking too little steps to get out of the vortex of lack and want, that the “cautious” planning and spending is supposedly trying to solve. Worse, conservative financial planning makes it harder to extricate oneself from poverty and could potentially create a permanent generational trap where people are afraid to take risks and continue to live below certain living standards.