Even though investing your money may sound like the scariest idea ever, experts will tell you that it’s a much better one than not investing at all. Yes, investing takes a certain risk, but not investing may have serious consequences for you in the future. And it’s important to realize that it’s never too early to start and it’s not only for those with a lot of money. Getting started in investing is a little confusing but it’s the first step towards making even more money with just a little finance savvy.
1. Think about savings first
Before you even start investing, you need to make sure you have a backup in case something bad happens. You never know whether you will lose your job or suffer an injury that will require some unplanned costs. So, you need to have a safety net: a savings account or cash ready for three to six months worth of expenses. Once you have that emergency fund covered, you can think about investing further.
2. Set financial goals
You need to make a plan before investing your money. Even if you don’t have specific goals just yet, try to sit down and think about what you want your money to do. Do you have a figure in mind you would like to reach? Do you have a plan what to do with your money? Do you need a certain amount of money or you’re just growing it? The more specific your goals are, the better. And you will invest your money with a much lower risk.
3. Set time goals
Just like setting actual goals, you need to set time to achieve them. It is the only way to realize whether your goals are realistic. Setting a time frame will also help you determine what rates of return you’re dealing with. Think about whether you’re having short-term or long-term plans when you’re deciding what you’re going to invest in. This also goes for the amount you’re planning to invest.
4. Set the amount and the risk
Another factor in the planning process is, of course, the amount of money you can afford to invest. Sit down and put on paper all financial aspects – debts, savings, monthly expenses, insurance costs, etc. until you get the amount of money that you would be able and willing to invest. Similarly, decide on the level of risk you would be willing to take. If you have a solid plan and plenty of savings, you may consider a high-risk investment. However, if you know you would only spend time worrying about the outcome, you should probably pass and stick to something safer.
5. Invest in more places
The biggest mistake you could make when investing, is gambling your whole money on one company. If the company goes out of business, your money is gone forever. That’s why you need to think in terms diversifying your investments. Think carefully about where you want your money to go and make sure to distinguish between wise options and emotions. For spreading your money across whole markets, explore mutual funds and ETFs.
6. Investigate the fees
Investing services such as mutual funds will help you deal with your money in the optimal way. However, you need to watch out for their fees. Even though they may seem small, you need to understand that these fees accumulate throughout the years. So if you’re investing in a long-term program, you may even lose hundreds of thousands of dollars a year to these fees.
7. Learn about stocks
Probably the best-known form of investing is stocks. A stock is basically a share in a company that makes you a part-owner once you invest. The more money you invest, the larger part of the company you own and the larger amount you can expect to get in return. However, if the company you invested in does badly, the stocks will go down. Essentially, stocks are more valuable if more people want to buy than sell, and vice versa.
8. Learn about bonds
If you buy a bond, you’re basically buying someone’s issuance of debt, therefore lending someone money. When the loan expires, the issuer is supposed to pay back the debt to the owner of the bond. But the issuer also must pay back the money with interest that was set at the beginning. This interest is what bonds are all about.
9. Keep track (but not too often)
Once you have invested your money, you need to make sure that things are going according to plan. However, many investors tend to become so nervous about their money and check and readjust their investments every so often. Yes, you need to rebalance your money from time to time, but don’t let it control your life. Check on your investment every 6 months to make sure the balance is maintained and take action if you see negative changes.