Many millennials would actually want to start investing, but the problem is, majority of them don’t know how to invest or where to even begin. Investing wasn’t taught when we were in school. When we graduate and enter the ‘real world’, we’re in for a rude awakening – mismanaging our finances, spending every peso we earn, and even getting into debt. Also, financial jargons can be intimidating to most people, making them think that investing is complicated and not for them. Fortunately, investing can be made simple. Here are a few steps to take to make your very first investment.
1. Set your financial goals
First thing to consider is your why. As with other endeavors, you should always begin with the end in mind. Ask yourself, why do you want to save and invest? What do you wish to attain in 5 years? In 10 years? These goals will keep you motivated especially when you struggle to set aside part of your come for future use. These will remind you that the sacrifices you make today will make a better and brighter tomorrow.
2. Have a positive cash flow
Next is to take steps to achieve those goals. First thing to do is to achieve and maintain a positive cash flow. This means that your income should always be greater than your expenses, giving you extra money which you can save and invest. The best approach would be to increase your income while keeping your expenses low. Find a side job or take on a business that would provide you extra income, don’t depend on a single income source. Then as your income increases, don’t let your spending follow. Instead, increase your savings and continue to develop the discipline to save.
3. Pay off your bad debt
When you borrow money, you need to pay it back, it’s not free money. Eliminating and avoiding debt requires you to establish a sound financial plan and steer clear of unnecessary expenses that bring short-term satisfaction, but long-term hardship on your bank account and you overall wellness. How to best deal with debt? Avoid it all together. Live within your means.
4. Build your emergency fund
There are a lot of life uncertainties which can cause you financial dilemma, like loss of job, medical breakdown, and disasters, and you need to properly prepare for these. Since you don’t know when these emergencies will strike, it would be best that you always have an emergency fund worth 3-6 times your monthly expenses. Remember, a 3-day sale or a seat sale is not an emergency.
5. Have yourself insured
It’s no secret that yourself is your best asset. It’s only natural to protect your income especially if you already have someone depending on you financially. With a good emergency fund and adequate life and health insurance, you are financially prepared whatever life throws at you. Also, the decision not to buy life insurance when you are young and healthy can be a very expensive mistake looking forward.
6. Learn about different investments
There are many investment options available out there. You need to study and know what’s best for you according to your needs and goals, your budget and other personal preferences. Never invest in something that you do not understand. You’ll just risk losing your hard-earned money if you do.
What’s the next step? You act now. You act immediately. All your knowledge would be put to waste if you don’t act on it. Just knowing won’t do you any good, you must take action if you are really serious about achieving financial peace. Time is crucial in investing. The earlier you start, the better. And as they say, “The best time to invest was yesterday, the next best time is today.” Don’t lose anymore time. When are you going to start?
Inspired by Randell Tiongson’s No Nonsense Personal Finance