When it comes to the question of when you should start investing, you’ve probably heard the answer ‘right now!’ or ‘as soon as possible!’. And, while it is true that the sooner you start managing your finances correctly and investing, the more opportunity you are giving yourself for financial prosperity, that really is the most simple answer. For successful investing, you need to take some time to consider this question in the light of your own circumstances.
Investing when you are young i.e. as soon as you are able to generate an income, makes strong financial sense with the main reason being the power of compound interest, a time-bound factor that you simply can never get back. Investing is a smart financial choice but deciding when to start can be a bit more of a complicated decision. If you have loads of debt or are about to start a new job, a plunge into the world of investment might not be your best bet for financial stability. But it should always be a goal to be achieved as soon as possible.
Steps to prepare yourself for investing
1. Budget, budget, budget
The first step to managing your finances is to know where your money goes and how much of it you have at your disposal. If investing is important to you, you will make it a priority or, to start, a financial goal, and you will hold off putting money into something less important so that it is available for investment. Can’t budget? You’re probably not ready to invest.
2. Have an accessible emergency fund
We’ve talked about this before but you should have at least 3 – 6 months’ worth of income stashed away for use in case of an emergency. This money is essential to protect your financial foundation and prevent you from falling into costly debt. Being able to deal with unexpected costs is essential, and will mean you won't have to dip into any investment for much-needed funds.
3. Pay off the debt you can
While some debt is necessary, consumer debt (such as student loans or credit card bills) can be a big drain on your financial resources, especially due to costly interest rates. Get rid of your debt as quickly as possible and enjoy the resulting financial stability and sense of freedom. Once those debt payments are done, you can use that money to start investing in some real returns.
4. Know your risk profile
All investment carries a certain amount of risk but some individuals are more risk-adverse than others. Your risk profile depends on a number of factors including current financial situation and future financial goals. Learn what level of risk you are comfortable with and start with investments that work with that profile.
5. Get learning
Investing can be complicated but it is possible to learn what’s involved and where you’re putting your money – you wouldn’t give away your money without understanding why, would you? Take the time to learn about various investment strategies and options and speak to your financial adviser (or consider hiring one, if you haven’t already) about their recommendations for your portfolio.
Investing is key to a healthy portfolio but it needs to come from strategic wealth management plan. Need help managing your finances and growing your portfolio? Talk to us! As investment experts, we are committed protecting and growing our clients’ wealth where it counts, with a strong focus on insurance to investment management.