Investing and learning how to manage your finances can be a tricky subject and with so much information to learn about it is shocking that we aren’t taught more about these subjects in school! Over the last couple of years I have dedicated time into researching the subject deeper because I would like to know exactly where my money is going and how I can better manage it. I am sure it is important to you too which is why I’d like to share some basic investing tips for beginners and how you can get prepared to start becoming an investor.
A quick note: I am not a financial advisor, I just wanted to put this information together for anyone looking to start investing as a complete beginner and help you get as prepared as possible. I have learned all that I know from investment professionals such as Tony Robbins, Ray Dalio, Dave Ramsey, John Bogle and more. I will share some resources with you shortly if you’d like to dive in deeper for yourself.
Why Having Investments is Important
Did you know that inflation in the US is at an average rate of 3% per year which means that if you are keeping your money in the bank or under your mattress, you are actually losing money because the value of your money in decreasing each year. Even with some higher interest rate bank accounts, the returns are so small your money will still be losing value.
This is why it is so important to think about your investing options and ways that your money can work for you and continue to grow year after year thanks to compound interest.
I have put together a short list of things that you can do to prepare yourself to get started with investing and over the coming weeks I will lay out some more tips and tricks regarding investment accounts, retirement info, common myths and how to reduce your risk with your investments. Let’s get started!
5 Steps to Prepare for Investing:
1. Research: The first step with getting started in investing is research which is what you are doing, congratulations on taking the first step! Take time to understand the best options for you depending on your unique circumstances. The investment advice you follow will probably be different depending on if you are self-employed or an employee, older or younger, and how well you can handle risk. I believe it is important to hear from many different professionals and apply what you think is best for your individual circumstances based on some of the factors I just listed.
Some great books that can guide you include:
i. Money, Master the Game by Tony Robbins https://amzn.to/3byneaY
ii. The Intelligent Investor by Benjamin Graham https://amzn.to/3bAqNgM
iii. The Essays of Warren Buffett https://amzn.to/3h9xHKU
iv. The Little Book of Common Sense Investing by John Bogle https://amzn.to/2R5lgFC
v. The Total Money Makeover by Dave Ramsey https://amzn.to/3m1A5qQ
2. Lower/Decrease Your Debt: You never want to invest if you have a significant amount of personal debt. This will add a lot of extra unnecessary stress especially if you are putting money into a retirement account that you are unable to access the funds quickly. A lot of retirement accounts will penalize you for removing money too early and you wouldn’t want to be in a situation where you have to sell your investments to cover your debts. You want to keep your investments invested as long as possible which is why the sooner you start, the better! Getting out of debt from any monthly payments is also important in being able to use more of your income toward your investments for the future instead of having your money tied up in monthly debt payments.
a. Some quick tips for lowering debt: go through all of your monthly expenses and see where you can cut out some things
b. Think about what you are spending money on, is it producing more money for you or just leaving your bank account? Limit these kinds of expenses.
3. 3-6 Months of Expenses Saved: For more information regarding this point and also some tips for getting out of debt be sure to check out Dave Ramsey if you haven’t heard of him already. Dave recommends saving 3-6 months of expenses for emergencies so that you won’t have to turn to your credit card and get in more debt during emergency situations such as a financial crisis or losing a job. Having some cash set aside will also diminish the worry or anxiety that investing money can bring, it is good to know that you have money set aside in case anything comes up.
4. Invest in Yourself: This one may sound cheesy but it is actually super important and something I really believe in! Once you have completed these other steps, and find that you have extra money sitting around: look for ways that you can learn a new skill or develop an existing skill or interest. The more you are able to develop your skills you can increase the value of your time or work that you are doing which will in turn increase your monthly income. Increasing your monthly income means having more money available to diversify and put into other investments like a home or stocks. This might also mean investing in a business you are developing or a business that is currently creating you income each month.
5. Put 15% of Monthly Income Toward Retirement: You finally made it to the final step that is investing in retirement or stocks. This is so exciting!! I remember being so pumped up about this when we got to this stage. Many investment professionals recommend setting aside 10-15% of your monthly income toward a retirement account. This might sound like a lot to you right now and if it is – just do what you can. Start with 5%, then slowly work your way up to the 15% recommendation. Your future self will thank you later. More on retirement accounts and how to start investing coming soon but for now this is a general summary of how to get prepared for investing!
This is a list I wish I would have focused on when I was 18 years old and hope that even if you are older than that you will be able to take advantage of some of these tips and start working toward the goal of becoming an investor.
Please let me know in the comments if you have any questions or anything else you’d be interested in learning about regarding investing next.
-Roth IRAs vs. IRA
-Different investment goals
-Contribution limits and taxes
Hope this was helpful!