What is investing?
Allocating money and/or time into an asset in hopes that it will grow beyond its initial value providing extra profit for the investor.
What is not investing?
Investing is not gambling. Investing is about taking calculated risk to achieve realistic goals while mitigating risks.
Many reasons including accomplishing your goals, achieving financial independence and being smart about your money. Over time, money that is invested grows at a much faster rate than money not invested.
The earlier you start the more time your money has to grow. Money now is worth more than money in the future.
Factors to Consider
Before we get into learning how to invest let’s consider a couple of things to make that you are ready.
Before you start investing it is ideal to pay off your debt. Interest payments on debt could be much higher than average returns on investments in the market.
Recurrent Costs + One-off Expenses
Before you know how much you have to invest you need to set money aside for your living costs. If you want or need to buy that pair of shoes set that money aside.
Emergency Fund (Rainy Day Savings)
It is also super important to keep enough money aside to support yourself/family for 3-6 months in case of an unexpected occurrence or emergency. Your need for this will vary depending on your circumstances but it is a good habit to start now. This practice is also known as keeping a rainy day fund.
Once you consider those factors you should have a better idea of how much money you have to invest.
Now you should ask yourself what do I want to do with these money? Do I want to save for retirement, a home, a car or simply increase my net worth?
Next you should think about how much risk are you willing or can you take? If you lose 15% of your investment tomorrow, will you be able assume that temporary loss?
Investment Knowledge + Time Commitment
Finally, you should be honest with yourself about two things. First, do I know exactly how to invest and reach my goals? If you don’t that’s perfectly fine but you need be clear about it to understand what to look for. Second, how much time am I willing to put into managing my investments? This will help figure the best strategy and service for you.
Thinking through these points will hopefully give you a better sense of yourself as an investor and set you up for success.