Whenever the word “investing” pops up, most people’s minds go to Wall Street. Men in suits investing millions in stocks. However, that’s far from the truth. Anyone can get into investing, even with just a few dollars. The key to the top is developing good financial habits. With the little money you have to spare, you can get into investing and watch the money multiply tremendously but make sure you know the differences between trading and investing.
Here is a beginner’s guide on how to get started with investing.
Start Early
It is never too early to start investing. In contrast, investing while young allows you to see substantial returns on your efforts. Through compound returns, your money can gradually snowball.
Inevitably, investing comes with a fair share of risks. However, starting while young means you still have time to learn from your mistakes and pick yourself up. You are also better positioned to start small as you have time to watch the investment pay off.
Set a Budget
How much you channel towards investments will depend on your investment target and the timeline you’ve set to meet that target. Once you’ve set a goal and time limit, you can now break that down to monthly investments. You can further break it down to weekly investments if that works better for you.
Weigh your Options
A common investment option is an employer-sponsored retirement plan. However, you are spoilt for choice with investment options. Before settling on one, do your due diligence on the risks involved. Other popular investment options include:
- Stocks – Investing in stocks means sharing in the ownership of a particular company. You will have to purchase the stocks for a share price. Keep in mind that the share price depends on the company in question. It could be as low as a few dollars to thousands of dollars.
- Bonds – Investing in bonds loosely translates to loaning a company or government entity. They will later repay the money after a certain period. While you wait for the period to elapse, you get interest profit. To some extent, bonds are not as risky as stocks because of the certainty involved. You know how much you will earn, and when. However, the long-term returns are not as high.
- Real Estate – Real estate is another investment path that most people can describe as lucrative. Unlike bonds and stocks, investing in real estate allows you to use leverage to buy a property. All you have to do is pay part of the total cost upfront and gradually pay the rest, plus interest. Another option in real estate is investing in a DST. It’s important to be knowledgeable on this subject, including the DST meaning. As opposed to you making all the decisions, the sponsor will do that for you. By being a passive investor, you are saved the trouble that comes with the real estate business.
Pay off Bad Debts
You can still become an investor even before you finish paying off your student loans and mortgage. However, some debts can negatively affect how much you reap from your investment. For instance, bad debt from credit cards will affect your interest payments.
Before you get into investing, it would be best first to settle these debts. On that note, avoid falling into money traps, such as buying the latest phone even while your current one works just fine. These unnecessary expenses will milk you dry, leaving you with nothing to channel towards investing.
Emergency Fund
Unprecedented events can be such a huge blow. For instance, you could get laid off, or the world could face a pandemic. Even during these challenging times, you need money to keep you going. That’s why creating an emergency fund is more of a necessity. While you can save any amount, 3-6 months of your living expenses is an excellent place to start.
We live in exciting times, where investing has gone through evolutionary change. It is no longer a reserve for the rich. If you are looking to getting started, there is nothing to hold you back. Most importantly, there are so many investing tools available online. You can make good use of them, and before you realize it, you’ll be on top of your game. You might also consider reading books authored by other successful investors for inspiration and insights.
