Make your wealth creation journey as smooth as possible.
There is no better way to build wealth than to invest your money effectively so that your future self can enjoy a better life. While you don’t need to be an expert to do well in your investing journey, there are some things that need to be done before you put in a dime.
Here are 6 things you should consider before you start investing:
1) Get rid of your debts
Let me start by saying that debt can be very useful if you know how to use it wisely. But since debt is eating away at your future selfand what i mean by that is that the loans have to be repaid out of future income, you have to make sure they are repaid as soon as possible.
Consider this, if you take out a $10,000 personal loan with an interest rate of 10% and at the same time your investments are earning 10% assuming it is also $10,000, what is the interest to invest? your returns directly pay the interest of the loan. This is why debt must be eliminated before investing.
2) Emergency fund
Since life is full of surprises and bad things are always waiting around the corner, like accidents and job loss, you want to be able to react quickly without hurting your future self. So, as the name suggests, an emergency fund is simply money that you put aside in case unexpected bad things happen. This money must be accessible whenever the need arises.
As a general rule, your emergency fund should be at least 3 times your monthly expenses, which means if your monthly expenses are $1,500, your emergency fund should be $4,500. I recommend 6x your monthly expenses to be extremely prepared for the worst.
I have to say, not everyone likes having a big emergency fund sitting there doing nothing but gathering dust and being eaten up by inflation, but that’s debatable. However, having a three-month emergency fund to use when the need arises is far better than investing just later to cash in on an immediate need.
3) Have a budget
I know for most people, myself included, budgeting sounds boring, especially if you don’t have a fixed income. But don’t try to think too much about it. It’s simple. All you have to do is:
- Write down all your unavoidable expenses such as rent or mortgage and other bills such as energy, water, etc.
- Add all your income from different sources if you have several (salary, hustle etc…)
- Deduct your unavoidable expenses from your total income to see how much you have left to keep.
- Set yourself a savings/investment goal, say 10% of your income and deduct it from what’s left over after unavoidable expenses.
- Use the rest as fun money, do whatever you want with it (Netflix, Spotify, travel, shopping), etc.
It was not bad. Note that there are many different ways, but this will work for most people.
4) Learn the basics/principles of investing
“Risk comes from not knowing what you are doing” warren buffett
You can’t win in monopoly if you don’t know the rules of the game like investing or any other type of business. But let me repeat it one more time. You don’t need to be an expert. The best way to start learning to invest is to read as many books as possible. The knowledge is already there and all you have to do is grab it. Here is a list of books that can help you get started:
The richest man in Babylon by George S. Clason
rich dad, poor dad by Robert Kiyosaki
Rule 1 by Phil Town
Money rules the game by Tony Robbins
You will begin to acquire the basic knowledge you need to facilitate your investment journey. Don’t bother with graphics at this point. What you need here are the principles and the right mindset to invest.
5) Have an investment plan/strategy
Let me start by saying that this one is easier said than done for most people because it involves emotions. And you know we’re all human after all. However, try to have a plan of why you are investing and don’t answer questions like making more money, but be specific about it. Is it for your retirement, to buy a house, for your child’s studies, etc. These will allow you to avoid the noise and focus on your project. Are you playing the game long term or short term?
6) Know your cheap
Although the principles and mindset apply to all types of investing, investment assets are not created equal. Choose the right market that interests you and focus on it. For example, you might be interested in real estate, so be sure to research it as much as possible.
Know that you don’t have to stay in one market, i.e. the stock market, but having a deep understanding of a market is better than having a deep knowledge of each market. It’s still debatable.