“Where should I put my money?” Like many people, you may be asking yourself this question from time to time.
Since interest rates on savings are at one of the lowest points we’ve seen in recent history, it’s not hard to reach the conclusion that investing is a good idea if building wealth is in your plans for the future.
Maybe you’ve even browsed around and found an investment product that suits you.
Remember that there are some steps you should be considering before going into your investment journey.
1 - Set Your Goals
Why do you want to invest?
The mere idea of getting a better future may be at the back of your mind, but vague goals make for vague actions.
Are you preparing your retirement? Setting up your children’s finances so they can get a good head start once they set out on their own? Or maybe you are getting everything ready so you can go on that dream vacation you’ve been dreaming of ever since you can remember?
Having a concrete picture of what you want your life to look like not only helps with planning, but it also can charge your motivation and make the whole process easier to follow.
Make it about your aspirations, not just about numbers.
If you can’t think of them just yet, there is no lack of inspiration sources out there.
The point is: what does success look like for you?
2 - Self-Assess
At this point you know where you want to be.
That begs the question: where are you right now?
It can seem daunting, but it is now time to get a high-level view of your current situation, from where your money is coming in to where it is going.
What sources of income do you have in place? Do you have an emergency fund you can fall back on should anything happen?
Are you currently paying debt?
Remember to include anything that can affect the money flow. You may be tempted to look only at the monthly recurring expenses, which can lead to big expenses such as annual insurance payments or a scheduled maintenance to be overlooked.
By now it is possible that you realise you need to adjust your goals. That’s ok, you can always adapt them as time goes by. Now it’s time to...
3 - Start building your plan
So now you know 1) where you want to be and 2) where you are right now.
Step 3 draws a bridge between those two points.
Take a look at your goals and ask yourself: how much do I need to have to make this happen?
Now look at your assessment and understand how much you could reasonably set aside to make it happen.
You don’t need to nail it down to the cent - these are projections to give you a guideline for your actions.
By doing this, you are now able to start making changes on both sides of the picture.
On one hand, you can build and follow a comprehensive budget that takes everything into account. (A small tip: having a monthly “emergency” category can help get all on track, even if you have an emergency fund in place).
And since typically interest on what is higher than the returns you may hope to get, one of your priorities should be to tackle debt.
Once you make your first budget, you can always think of ways to improve it. You just need to keep two principles in mind: spend less, earn more. Within reason, of course.
Remember that money is not your goal: your goals are your goal.
4 - Step Up
You’ve made the preparation work to start investing, now it’s time to act on it.
As you move along on your plan, remember that there will be ups and downs, and that no strategy is perfect. This is a dynamic process that can be adapted, and life-long learning is always a good idea.
So don’t let perfectionism stop you, because the sooner you start, the further you can go. Take it from Warren Buffett, who said: “I made my first investment at age eleven. I was wasting my life up until then.”
Know someone that doesn’t know how to start? Share this article to get them moving!