Investing is a lot like taking a road trip.

Let’s say you live in New York and you’ve decided to drive to Los Angeles. Between the two cities, there are thousands of roads to choose from. Some will take you to Los Angeles and some won’t. Some roads are faster. Some roads are prettier.

As the driver, it’s up to you to decide which roads to take. You can take your time, making frequent stops and enjoying the scenery. Or you can concentrate on speed, choosing the roads that take you to Los Angeles as quickly as possible.

You can also get lost, take a break, or change your destination entirely. It’s all up to you.

How does this apply to investing?

Decide Where You’re Going

Every trip starts with a destination. You want to go to Los Angeles, Paris, the Bahamas–wherever. Unless you know where you are going, it’s impossible to plan out how to get there.

You need a picture of the future, a reason for investing. For example, are you investing in real estate to prepare for retirement, put your kids through college, quit your job, or start a new career in a field you love?

You need to decide how much money you need to achieve your objectives and when you need it by. For example, if your objective is to quit your job and retire, you don’t necessarily need a $10 million net worth. Instead, you might need $5,000 per month cash flow.

By asking yourself how much money you need and when you need it, you create a destination in your mind. You know where you’re going.

It’s the first step. The next step is to figure out your origin.

Figure out Where You Are

If you want to drive to Los Angeles, it’s hard to know how to get there if you don’t know where you are. Are you in New York? Miami? San Diego? Your point of origin will determine which roads you choose.

In investing terms, you need to start with an awareness of your current situation. You need to know:

• How much money you have to invest
• Your credit score
• Your disposable monthly income
• How much time you can spend
• Your risk tolerance
• How your family feels about investing

Each variable effects your investing strategy. Put all of them together and you’ll build a profile of where you are right now.

It’s important because it will affect which road (or property) you take. Choosing the wrong property is like trying to take Route 66 from Miami to New York. It doesn’t go that way, and trying to make it go that way will only frustrate you.

For example, it’s hard to invest in raw land unless you have a lot of cash. You can try to do it without cash, but you’ll probably get frustrated. Similarly, it’s easy to invest in single-family homes if you have a high credit score and some disposable monthly income.

So, the second step to investing is figuring out where you are right now. Then you can decide which road to take.

Choose the Right Roads

Once you know where you’re going and where you are, it’s possible to start planning a route. You can decide which roads (or investments) are right for you.

Only, it gets complicated. It’s safe to say that there are dozens or maybe hundreds of ways to drive from one city to another. You have to ask yourself:

• Are you looking for the fastest route?
• Do you want to go slower and enjoy yourself?
• Will you make any stops?
• Do you have time for detours?

For example, some people want the fastest road. They’ll drive straight through, even if it takes days and they hate every minute of it. Getting to the destination is all that matters.

Other folks, on the other hand, generally like to go slower and enjoy sites along the way. They’ll eventually get to their destination, but they’re more concerned with enjoying the journey.

As an investor, you’ll have to decide which path seems most appealing to you. Then you’ll choose the individual roads (or properties) for getting there.

Curious about how it all fits together in a real-life example? Stay tuned for my next post.