Investing your money is one of the smartest ways to increase your income. Big names, like Warren Buffett, made their fortune by investing in stocks. And many everyday people make smaller windfalls through investments.
Investing is a way to make your money work for you. You put your money towards something expecting to receive more in the future. While you go to your day job, your invested money is making a side income. That helps with saving up for college, retirement, or a house.
You see the wisdom of investing, but where do you begin? A good place to start is knowing yourself. That’s where this post comes in. If you plan on investing, you need to ask yourself 5 questions ahead of time. This way you have a battle plan going into the investment world.
Are you financially prepared to invest?
There are 3 financial steps you need to take before you start investing.
One, you need to pay down your debts. It’s almost always better to pay off your loans before investing your money. The interest rates on your loans could be higher than the interest rates on your investments. In the long run, you’ll make more money by paying off your debt first.
Two, you want an emergency fund. There are bad investments out there. If you make a mistake, you want some money to fall back on. Also remember that things in life happen. Sometimes you lose your job or sustain an injury. An emergency fund gives you a safety net so you can invest money with peace of mind.
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Three, you need to save up for an initial investment. Different investments require different amounts of money to get started. There are ways to invest if you only have a little money. Other investments require a lot upfront. Depending on how you want to invest your money, you’ll need to save up an appropriate amount for the initial investment.
1. What are your goals with investing?
Are you aiming for a short term or long term goal? A short term goal could be getting enough money for an engagement ring. A long term goal could be saving up for retirement.
How much do you want to make? When do you need that money by? Knowing your goals will help you choose what kind of investments to make.
2. What will you invest in?
There’s a lot of options out there:
• Real estate
• Cash flow from a business
• Savings accounts with high-interest rates
And there’s more. Researching your options will help you make a decision. Some investments are riskier but offer higher returns. Conversely, some investments are safer but yield lower returns.
3. What’s your approach to investing?
Different people have different circumstances. A young, single man will make different investments than a mother nearing retirement.
Another factor to consider is personality. One person might prefer taking on riskier investments to gain higher returns. But someone else may be more comfortable investing conservatively. They can go for a low risk, low return investment.
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What about you? Do your circumstances affect what kind of investments you can make? Based on your personality, do you see yourself making certain kinds of investments?
4. Who will help you invest?
Are you a do-it-yourselfer? Or do you want a financial advisor? Some don’t mind paying a fee to have face-to-face conversations with a professional. Advisors can be a powerful ally and resource in understanding investment options. Others prefer to do it alone.
Robo-advisors are becoming more popular. They are easy-to-use apps for investing your money. There are a lot of options on the internet. Two popular choices are Betterment.com and E*TRADE.com. These platforms allow you to manage money online.
5. What do you want out of investing?
The most important part of investing is knowing yourself and what you want to get out of investing. Ask yourself if you’re financially ready to start investing. Ask yourself what goals you hope to accomplish.
Answering these questions will give you direction as you navigate the complex world of investing. It will give you clarity on what decisions are right for you.
Will you make mistakes along the way? Sure. But you can make fewer mistakes by answering these questions ahead of time. Save yourself money and time by knowing yourself first.