7 Steps to Start Investing

7 Steps to Start Investing

What do I have to do to start investing?

1. Keep a budget with your monthly income and expenses

To be able to invest, I have to have some money saved and for that I have to have a sum of money every month that I don't use. So it's important to be clear about how much money I can save each month.

If I am interested in saving more money with a monthly budget, I can analyze my expenses and evaluate different alternatives to reduce them in a way that allows me to save more money every month. Another option may be to evaluate what options I have to generate additional income and increase my savings.

2. Obtain surpluses in that budget

Once I've put together a monthly budget, I'll be able to identify the surpluses. This allows me to determine how much money I can save each month and how much additional money I will need based on my medium and long-term goals. This way I will know how much time I need to save in order to achieve my goal.

For example, if I have saved about 5 thousand USD for a trip I'm going to make in 1 year, in addition to continuing to save the surplus every month, I know that those 5 thousand USD for 1 year I will not need, then I could invest them to obtain additional income and reach my goal earlier or arrive with more money than calculated. It is important before making an investment to be as sure as possible that I will not need that money for a certain period of time, in order to estimate the period of my investment.

3. Analyzing the starting point

This point refers to understanding the personal economic situation in which we find ourselves at the time of making an investment decision. Is that monthly surplus my only savings? or do I also have an emergency fund that covers at least 3 months of my fixed expenses? The starting point is key because it determines the level of risk we can tolerate. Since obviously if those surpluses are our only savings, we are not going to place them all in a single investment.

4. Define what will be the objective of that surplus

It is probable that we have many objectives, but money is a finite resource, so we must select a specific objective for the investment we are going to make. Example: Buying a car, going on a trip to India, buying an apartment, etc. This allows us to identify the time of our investment and the level of risk we are willing to take. The general rule is that the greater the risk, the greater the profit. So if I have a 10-year target maybe I could take a riskier investment the first few years for a higher return. And in case the result is not as expected I have time to return to generate those revenues, however if I have a short-term goal for example to 1 year I should choose a stable and conservative investment with little risk as can be a Common Investment Fund that invests in Fixed Terms.

5. Seek advice, information and/or research

Deciding to invest means that we are willing to risk our money (if we risk because every investment has an associated level of risk) in the hope that we will receive more money in the future than we are placing today.

Then you can't be left with hope alone, take advice, consult with an advisor, read books on the subject, research on the Internet and consult with people who understand the financial world, to obtain the greatest possible certainty that the option you are choosing is the best for you. If we do the same when we go to buy a dress for the wedding of our best friend, we investigate all brands of clothing, consult with other friends, ask for advice, seek in instagram, pinterest and how many other things, how can we not do the same and more to take care of our money?

6. Defining the what, how and when of our investment

Once you've put together the budget, identified the surpluses along with your current savings, defined your investment goal and timeframe, then the next step is to choose an investment. The WHAT, usually determined by the surpluses we identified in the previous points, would be What money am I going to invest?

The WHAT has to do with where I am going to invest, that is to say in which financial product, How am I going to invest? The options can be through a broker, a financial advisor, in the stock market, in my bank in fixed terms, in common investment funds, in stocks, bonds, or perhaps in a real estate development. And finally the WHEN is directly related to the moment I decide to start investing and for how long I will do it.

When am I going to invest? For example, I can define to save a determined sum for one year and then place it in a common investment fund for 2 years so that in the 3rd year I can buy a car with the investment plus the savings that I generated during that period of time. As you can see, planning is key to investment issues.

7. Choose an investment with which you feel comfortable and understand where you are investing

Investing means giving our money to someone else to make decisions about it. So it has an emotional component, because in that decision is at stake the trust we have in each other and also our dream is at stake, because that money has a goal for us! So we always have to choose investments that we understand and have clarity about how they work and what results we can obtain, as well as the risks we are taking to make that investment. Consult, ask and learn with your advisor.

If the advisor or the entity does not explain everything to you clearly, then look for another one, because it took you a lot of effort to generate your savings and you deserve to know all the details regarding what they are going to do with your money. You need to trust and have as many certainties as possible. The track record and experience of the person or entity to whom we are giving our money can help us gain confidence and peace of mind, so it's important to ask about it.

There are also many reports on historical returns that you can consult to know how this entity handled its investments in the past, as always information is power. And when it comes to our money is where we have to be most informed because it is the key to our independence and to fulfill all our dreams.

Gregory Weiss
Gregory Weiss July 25, 2020