Make sure your affairs are in order before moving on externally.
When getting ready to invest for the first time, it is so important to have these few things in check before actually putting the money into those investments. These steps can get over-looked so easily and if they aren’t taken into consideration the first time around, you may end up in a really bad spot. I know you’re just as eager as I am to start investing and we had to cover some important concepts before we get to this point. As if we are financial athletes, those last two post were your practices. This is game day people, the big leagues! By the end of this post, you’re going to know what you need to be ready to invest. You’re going to be locked and loaded and the ammunition is free.
Step 1.) Know what your income is compared to your expenses. Then Initial capital
This may sound simple, but not knowing exactly what you’re spending per month is going to drain away from your maximum investing potential. You need to create a budget for yourself. Figure out exactly what you’re making on a monthly or even weekly basis. When you have this figured out, write it down. Write down you budget or keep track of it somewhere like on a spreadsheet. This is when you figure out the specific amount that you can afford to invest on a monthly or weekly basis. The key is, you need to keep putting money into your investments. Don’t be tempted to even cut the amount you want to put away. If anything, that amount should only grow. I
A subsection of this step includes putting aside a decent amount of money. Something like maybe a paycheck and a half should be ready for you to invest in your initial deposit. Some brokers have minimum requirements, but that’s not the reason why you need to have this set aside. You need it because you’re not going to see results with a few bucks ($50-$100). You’re gonna need to pump up those numbers! It’s not that you need money to make money, but having a sizable amount to begin with is nice because you can begin to afford the companies that are actually worth a damn. I’ll cover those guys later don’t you worry.
Step 2.) Create a sizable emergency savings account.
Although this isn’t going to mature crazily, you are still contributing to your financial base in an important way. In the event that you’re unable to work or need to pay for an emergency expense, this account will have your back. This isn’t step number one because your income comes first. When you have your stream of income set up correctly (a.k.a. you have a steady job), you’re able to use that income and divert it towards other things. Work on saving an amount that covers at least 2-6 months worth of your expenses. If you lose your job, that rebound rate varies based on how employable you are. If you have above average sized monthly expenses or foresee a possibly large expense (like your car will need repairs) on the horizon then your savings amount will vary again. So preparing for a rainy day is worth whatever you put into it. The question is, how bad do you think those days will be for you?
Step 3.) Picking the right broker
If you’re this far, you’re telling me that you have your budget in order, and your savings account can tide you over in the event of a large financial storm. Congratulations! Not many people practice doing step 1 or 2. Since you practice both steps, your reward is the gift that keeps on giving. You check all the boxes as someone who is ready to invest. So what’s next? Finding the right broker. Actually in my suggestion, it’s more about finding this broker. This path makes the most sense to me because we are in the business of making money here! What cost less and still performs the best is what I’m after.
You’re a young investor so of course you’ve heard of Robinhood (peep the link, if you’re creating your Robinhood account for the first time). I have used TDAmeritrade and Robinhood. Nothing else! I do not see myself going anywhere else and maybe you shouldn’t either, but why exactly? Robinhood does not charge you a fee every time you make a trade. This includes buying and selling of your shares. Everyone else does that, and for what exactly? So you can use their fancy tools? Those tools look appealing but if you’re up for it, you can get by on your own perfectly fine. I mean look at you! You picked the worlds best blog to learn about making money. You’re a resourceful and competent person so take it upon yourself! And besides, I’m gonna teach you how to be above those tools. I use Robinhood to make the purchases but I don’t rely on it for information. The information that any other big broker would have is something you’re paying for in those fees. It is free information they’re selling to you. These are publicly traded companies and everything about them is publicly disclosed (up to a certain time period, because they release information on a schedule for the most part). Which means you can get to it for free. It’s not like these brokers have guys on the inside! You’re paying for their experience, their opinions, analyst opinions, and a community’s opinion formed of people just like you and me. You’re smart like I said before, you don’t need their exact idea of what the price of a stock is going to do. I scour those messages boards constantly and all I see is bickering about how the sky is falling and nothing on the fundamentals of the company. We will talk about what to look for when it comes to information about these companies, but you don’t need to pay for it at this stage of your career. What is valuable is in their quarterly statements and so on. Bottom line is, use Robinhood for your transactions, and do your own research without using brokers tools.
You have your budget set up, your initial capital is good to go, savings are secured, and you just made your account on Robinhood. You are ready to do this! One more step closer on the road towards having your money work for you. But a new question should be on your brain, what strategy of investing is right for me?
These are generalizations and meant to increase your understanding of the securities market. Any advice contained within this blog is general advice and does not consider your objectives, financial situation or needs, and you should consider whether it’s appropriate for you. The information we are giving you is for educational purposes only.
“Investing is about understanding your risk” and every time you invest in the share market there is a risk of loss. Trading is not for everyone. There is a possibility that you can lose your money. You should only act on our recommendations if you are confident that you fully understand what you are doing.