Investing for Beginners: Advice on How to Start Investing
When people hear a word “investment” first thing that comes in their mind is about men or women in a corporate look with suits while keeping a track of million dollars that exchange within an hour. Though the concept of investing seems to be vague to lots of people especially to youth but once you understand the basic essence of investment, its pattern and areas that are less risky for beginners then gradually further investment can be done.
If you are a teenager or at the initial stage of your 20s’ it is obvious you might not know how to start investing and where should you invest. And as a beginner you might engage yourself to self-help books and few other books regarding finances or might be learning basics about investing. Realizing that one must invest at early age is much better because earlier you start then the sooner you can make mistakes, can learn from mistakes, you have much higher risk tolerance because a mistake that you might have make is not going to be as costly as opposed to if you are in your 30s’ or 40s’, where you have to be bit more cautious and conservative in your investment strategy. Result of investment takes time, of course but there are some basic tips that are really important and must be followed if you are a beginner and willing to invest for future.
Now the first and most important thing is to pay yourself and this is one tip that is suggested by any kind of investment book or any financial book out there, because you need money to invest. You need money that you can put aside to save or invest or whatever it is. And if you can’t take a percentage of what you make and put that aside, then there’s no hope for you to be able to grow your net worth and be able to make more money. So, whatever amount of money that you are making right now, whether it is $2000 or $5000a month, or even more, you have got to make decision. The most important financial decision of your life, which is that you are going to take a percentage of what you make, which is minimum 10% that you are going to put aside and pay yourself first then put it in savings account or an investment account or some other account that you will not touch.
Now, you might think, well I don’t have the money to do this, I live month to month. Well, maybe the step before that which is actually even more important is you have to manage your money, manage your finance and must pay full attention to it on weekly and a monthly basis. Because you should never be in a position where you are living month to month. That’s a horrible position to be in, that position means you are never going to be able to get ahead in your life as living month to month basically means your expenses is same as your income. No matter whatever income you are making is going right towards your expenses. And the only other option to be able to pay yourself either you need to make more money and keep expenses where they are at, so that there is positive cash flow and take that money and pay yourself first or lower your expenses.
For most people, the best thing to do is lower expenses, cut down on current living expenses because living month to month, one cannot afford to live the way they are living as they are living beyond means. And that is not smart financially. Certain sacrifice should be done which could be cutting on those meals that are eaten outside home take a bus instead of Uber. These are minimum sacrifice that one should make in order to bring down expenses so that there is positive cash flow. Anything that is excess should be saved and pay for yourself. The reason it is said pay yourself because you are supposed to pay yourself that money before anything else, before you pay your bills, your rent, or anything else.
Second thing is you need to make sure that you have an emergency fund of savings. If you don’t have that then you are going to be in trouble. Typically, all the financial books suggest that one should have at least three to six months of savings, which is typical of your expenses. Suppose if your expenses every month is $1500 then you should put aside at least $5500 to $11000 in savings as an emergency in case something happens to your job or business or any kind of misshapen. But you must know your exact monthly expenses otherwise you will end up in a big trouble.
Once you have done that, you have an extra positive cash flow where you will pay yourself and have that money go into your saving accounts. What do you do with that money or how do you invest it? Well it is a time where you have to explore different investments that exists.
The number one investment which is also suggested by Warren Buffet the multi-billionaire investor, the best investment, before anything else, that one can make is not on real estate or stock market but it in in yourself. And by in yourself, it means investing in your knowledge, developing skills, confidence, beliefs, learning about finances and marketing skills and all the different skills which will help you make more money and make better decision. All the most successful people in the world understand this and the truth is that if you could invest in yourself, that’s what going to bring you the highest return out of anything else, because if you continue down the path you are and you don’t invest in yourself then you will continue getting what you have always got. Depending upon job you are associated with or business you are doing invest on books, courses, training sessions, seminars which will enhance your skills.
The second most important thing that will get you best return from beside yourself, is your business. A business is something that has high potential for reward because you are in control of the business which is directly related to you. The more you improve yourself, the more your business will succeed. And you always want to bet on yourself more than anyone else. So, betting on yourself, investing money in a business, whether it is online business or whatever it is, that has higher potential of growth and it will be lot less risky because you have more control over it as well.
The other option that you have would be stocks, or real estate or loaning money. And you can explore a number of different ones. In fact, most of the book authors and multi-billionaire also suggest to invest in an index fund and stocks. An index fund is basically a stock or mutual fund that has very low fees but it’s owning a segment of a market. Index funds are actually a best way to invest your fund because as the economy goes up, investment that you have made also goes up and you make more money. And about stock market it is also best investment one can make because it is low maintenance and depending upon company’s profit you will keep receiving dividend.
And most important thing one should understand while investing is, try to invest for long-term, which mean having a long-term mentality, don’t caught up in the whole get rich quick mentality because that will lead you to making a lot of bad decisions and get you into trouble. Long-term investments in a monthly basis will have positive return and positive yield. Also it is important to understand that when you invest in index fund or stock market can go up sometimes down. And sometimes if it goes down it is also a good in a way as you will have an opportunity to buy more of a stocks in discount and when it rises you can again sell them and have profit because economy always recover.