Before you jump into investing, there are some key things you need to do that will save you from making mistakes and losing money, as well as helping you to make money quicker, according to these tips from experts.
“An ounce of prevention is worth a pound of cure,” so the old saying goes, and this time-honored wisdom holds when it comes to investing.
A few key moves in the right direction can prevent unnecessary suffering in many cases. Not only can you avoid problems, but you can also start building your wealth much more quickly by doing some preparatory work before you invest a penny.
Here are four key tips from the experts on moves to make before you get started with investing.
This is probably the most overlooked step and one that many people skip – and it’s the most important. You don’t want to step into investing blindly and not understanding what you’re getting into. That is not to say that you must be an expert yourself before you begin. Still, you must understand the basics and understand the relevant parameters to make the most informed investment choices, according to Forbes.
The cost of training is no longer a factor. YouTube is flooded with videos you can watch for free. Just make sure who you are listening to is an “expert.” Also, check videos against one another to make sure the advice is consistent. That’s a suitable method for figuring out what is true and what is not.
However, if you have the funds to invest in a solid course taught by experts, it can be a worthwhile move. Choices include books, online courses, or attending seminars. Look for reviews online from others who have taken the course to make sure it comes well recommended.
To have money to invest, most people need to save, but before you can do that – it’s likely you will have to reduce your expenses. These aren’t the expenses that can’t be avoided; these are expenses you can do without.
Examine everywhere you spend money and figure out what’s unnecessary and what can be scaled back. Impulse purchases have to go.
Once you have determined where you can reduce your expenses, set a budget and stick to it. This means three categories:
(A) Monthly expenses: The money you must use every month to pay your bills.
(B) Monthly savings: emergency cash for unexpected expenses such as an illness or loss of a job.
(C) Monthly investment amount: the money that you will add to your investments every month.
Additional food for thought: if you find out you have saved more than you have allotted in your budget, don’t use it as an excuse to spend. Instead, look at it as additional money you can put into your investments where your money will work for you. All this gets you one step closer to financial independence.
The fourth key step is what it’s all about: Taking action with your money and making investments. Investment isn’t risk-free. Generally speaking, the younger you are and how much available cash you have to risk (without putting yourself in dire straits), the higher risk you can take or absorb.
However, the more you educate yourself about investing, the smarter moves you can make.
There is also lower-risk investing, but the returns are much lower also. Older people, close to retirement with fewer working years left, are typically advised to take lower risks simply because they don’t have enough working years left to earn back the money they may lose on high-risk investments. But even that varies depending on how much cash you have to play with.
The bottom line is, the most significant risk is not investing. Due to inflation, your money loses value over time. Don’t allow yourself to become so risk-averse that you don’t invest at all.
Lastly, when you find an investment strategy that works for you, keep repeating that winning formula while being careful not to put all your eggs in one basket.