5 Things You Need To Consider Before You Invest
5 Things You Need To Consider Before You Invest
For the past year or so talks of inflation have permeated many a conversation. It has been an inescapable truth of our current global society with constant reminders eeverywhere we turn. Food prices are constantly rising, fuel prices have gotten astronomically high and the cost of materials, supplies and products in almost every industry has been affected. Our pockets are being plowed through expeditiously as our salaries are no longer able to cover our expenses like they previously could. And as ‘the pressure gets worser’, the average person has been looking for more ways to sustain and improve their lifestyle and life situations through gaining more money. Enter the holy grail of financial advice ‘Investing ‘ to save the day.
Investing has become the vehicle to achievable wealth for many especially for the younger generations. Rising cost of living, exploding housing market and so much more has made it increasingly difficult to climb the wealth ladder. Let's not even add debt into the mix. Or, the fact that gas prices have been rising at an expeditious rate all year. I for one have seen a 50% increase in my gas price at the pump over the last year and it is only just the start of 2023 so who knows where it will head! But I digress.
Investing has made it extremely possible for the average person to develop wealth. And it has been a significant part of the wealth strategy for many of the wealthiest persons on the planet. I’m sure we’ve all heard the spiel before from one person or another, ‘You need to invest ‘. ‘Investing is a must’ or ‘You should start investing today’ etc etc etc. Especially as more and more entities are willing to improve financial literacy and access for the average Joe/Jane. Investing has never been easier.
And while I do agree investing is a very important part of every person’s financial journey, I feel like most times the advice is given in isolation and doesn’t really address that we all may be at different stages in our financial journeys. Some coaches and financial advisors do but many don’t. The idea of investing has become the mainstay financial advice of the 21st century leaving many a beginner stumbling and wondering where to start and how can they start their investment journeys. Neglecting that some people may not be at a place to start investing just yet because other financial factors seriously impact their abilities to do so.
Now I’m not a financial advisor, guru or wiz who’s going to take you out of poverty and make you a millionaire. I’m definitely not promising that. I’m just a girl on the internet with some thoughts on money management and personal finance sharing my opinion. If you think there’s some wisdom in my spiel then enjoy and I appreciate your support but my best advice to you is to contact a licensed financial professional (not one trying to sell you something but one who genuinely is trying to guide you on your journey, even better if they have proven successes) and begin your financial journey with them. But until then… while you’re still here, these are my tips on where you should begin when embarking on your investment journey. I honestly think these things should be put in place before you even consider looking into investing or venturing into places like the stock market.
1. Create an emergency fund
Yeah I know its not exactly investment advice but hear me out. Investing is risky business. You can have amazing wins but you can lose a lot too. The hesitancy that investing usually has is from people putting all their eggs in one basket and losing everything, even becoming destitute in the process. Furthermore it makes no sense to be investing and every time there’s an issue or emergency you have to pull from you investments before you get a chance to full realize their gains. It limits your potential to fully realize your profits.
Listen life is going to happen. We truly can’t predict when setbacks or emergencies (big or small) will occur. That’s why things like in case shit happens… ahem insurance exists but unfortunately not everything is insurable nor do you always want to go through the insurance process to get things sorted out. Sometimes you may need things more immediately than insurance would allow. That is where an emergency fund comes in. For those of you don’t know an emergency fund is money saved and set aside just for emergencies. A rainy day fund for life’s little wrenches in the plan. Much like ‘get vex’ money that girls are told to have when going on dates. An emergency fund acts as a financial buffer to easy your worries for when incidents and emergencies eventually come up.
Before you invest, I recommend you create an emergency fund where you have 3-6 months of expenses saved up. And these are bareboned expenses too like your home costs, utilities, car maintenance, pet fees and so on. Note you don’t have to use it only for what I listed but basically you should have money set aside just for emergencies alone. It should be relatively accessible but not too available that you spend it every month like it’s a part of your regular monthly expenditure.
Note, you can build your emergency fund alongside getting your feet wet in investing by simply allocating a portion of your budget to your emergency fund and a portion to investing if you want and build both up overtime. I just personally prefer having savings set aside first before I start investing. I know many financial gurus may not agree but for many of us having that safety of knowing you have some money if things goes wrong truly makes me feel better.
2. Clear bad debt/ high interest debt
D-E-B-T. That four letter word causes so much heartache and stress for many. Owing the banks or other financial institutions, owing other people. * shivers * Having a significant amount of debt can really put a hamper on your life. Like an anchor weighing down your financial potential; having high interest debt does just that, weighs you down. It limits the amount of money you have available to build out your financial goals and to live your life. It can be truly limiting. And I'm taking about serious debt here not necessary debt. We all know that having some amount of debt is a part of life. Not everyone has the money to buy property outright so you take out a mortgage. You many not have all the money on hand so you take out a car loan. You’re a business looking to expand so you take out a business loan, etc. These are all necessary debt. (Some may argue about car loans being unnecessary but to me and many the utilization of a car is a necessity and even though a car devalues, it can still be sold and earn some money if needed even if it isn’t as much as you bought it for… so argue with someone else. Thank you. :D).
Now like I was saying, not all debt is bad and some are even necessary to propel your towards achieving your dreams. These are not the debts I’m talking about. In fact, oftentimes, these loans are given at a relatively low interest rate. The debt I’m talking about is the really high interest rate debt eg rates of 25%, 30%, 40% and so on. The high interest rates that are eating your profits. Investing is a great tool to battle inflation and rising costs but if you are being buried in debt and constantly being burdened by fees and high rates then your overall financial situation is actually dismal. Your overall networth (ie assets - liabilities or profit/gains - losses or money in - money out) is trash and you aren’t truly making the gains you think you are. Your overall financial picture suffers when you are being sunk by debt there is no way around it. You can make great profits from investing but it makes no sense if you have high interest debt eating away at your profits.
My suggestion is to clear your debt first. Simple as that. There are different methods of clearing debt whether it be debt snowball or debt avalanche methods (I can discuss both if you want) but whichever you choose, make sure it makes the most sense for your financial journey. Getting rid of bad debt and high interest debt is like a breath of fresh air being breathed into your finances. It not only gets your debtors off your back but it also frees up money to put towards investing. Less debt = more money to invest = more opportunity for profits. Now if you have low interest debt then you could clear the debt first or preferably I think you should invest alongside clearing your debt. Doing both will put you on the right path to financial freedom and your networth will constantly improve due to movements on both sides of the equation.
Related : 7 Top tips to tackle your debt in 2021
3. Educate yourself
Like you’re doing now. Yay you!!! But seriously better and more knowledgeable than me exists in these here interwebs. There is so much more access to financial information in modern times that you learn so much about investing before you do your first investment. Before it felt like investing was just for the rich and powerful. A secret club of who’s who of the wealth but now the resources are bountiful and readily available. There are resources available at every corner on the web and social media, There are people who are willing to teach you from their own financial knowledge and you need to be willing to learn.
An issue that many people have when starting investing is that they want someone to just tell them word for word, bar for bar where to put their money without doing any work and that’s not how it goes. That’s why so many people get trapped in Ponzi schemes and financial scams. I believe everyone needs to learn at least something about investing, even if you have that magic money fortune teller telling you exactly what to do. Maybe I’m a control freak with trust issues but I like to know where my money is going and what my money is doing. I mean if history has shown us anything is that not everyone is trustworthy or even good at managing money. There have been so many persons who have gone broke by taking a handsoff approach to managing their finances, I’m sure there’s a book or documentary about it somewhere. And even with different regulations overseeing financial bodies, some investors are just not going to be on the same financial page as you are. You may notice a diamond in the rough that your banker may not. Not to mention they manage multiple portfolios at a time so you need to be somewhat involved in guiding how you want your money used. Because at the end of the day it is your money.
Educating yourself about finances is a big leg up in this money game. Believe me. It helps you to understand the principles that has made so many rich and wealthy in their lifetime. It's critical to take the time to research what factors may have an impact on your investments so you can make informed decisions about what to do with your money.
And like I said it has become easier to do on so many fronts. For example, when I used to look financial information years ago (I’ve always been a little money obsessed), the only information I could find was USA based. From personal finance blogs, to financial institution policies, it was all pretty much U.S. related. But now, there are so many Jamaica specific financial information it’s amazing. I love it!!! The information is there for you, you just have to be willing to learn it.
As a brawta, here are some useful financial resources:
Websites:
Instagram:
Youtube:
Twitter:
Bricktalk (A twitter space held every Friday) hosted by Randy and Danhai
Stocksontherocks (They also have twitter spaces and in person meet ups with CEOs at the Palisadoes)
Related: 10 Amazing Jamaican Bloggers You Should Be Following in 2020
4. Have a plan
"If you don't know where you're going, any road will take you there." - Lewis Carroll
One of the main things to consider before investing is what is your end goal. Are you investing for the short term, long term, medium term? Are you planning to day trade? What are you investing for? What is the end goal? Before you make any investing decision, you need to sit down and take a look at your entire financial situation.
You need to figure out what your goals are and in what time frame are you trying to achieve them in. You also need to decide on the level of risk you’re willing to take on because there is no guarantee that you’ll make money from your investments. In fact, you may suffer some losses. I certainly have. But the important thing to remember are that profits and losses are all unrealized (meaning it’s basically only theoretical or is not real) until you actually cash out of the market and take the cash value.
Systems like the stock market change daily and you will see stocks go up and down ever so often; so it’s important to have a plan of action with regards to these eventualities. It helps you to remain focused on your overall goals and reduces the likelihood of you making emotional or uniformed decisions. I mean there’s no denying that investing can be an emotional rollercoaster and you will get tempted to change strategies and abort in times you feel scared or because things aren’t going as well as you’d think. You may be tempted to react quickly and start selling off your assets. But it’s in times like these you really need to examine your strategy and make a decision on how to move forward. Sometimes the answer may be to cut your losses and get rid of an asset out of your portfolio, but oftentimes, the answer it to let it sit and do nothing. Eg. If your approach is intended to be a long-term plan, making decisions based on short-term market fluctuations, may greatly affect what you set out to achieve.
Knowing what your investment goals for your money is will help you to come up with solid and well thought out plans of action and pick the right types of investments that will help you to gain financial freedom and security in the years to come.
5. Start small
More risk = More Reward right? But more risk also can = more losses. Like I mentioned earlier, there is no guarantee that you’re investments will be successful at all, especially not in the early stages. Even experienced investors have suffered losses on their investment journeys. So my best advice when starting out investing is to start small. What I like to say is to only invest money you can afford to lose. Money that if it ends in the negative, it won’t leave you destitute and desperate.
There is often this feeling that whenever you’re starting out investing, you need to start off with large sums of money and you need to invest it all to get the profits but that is simply not true. Starting off with a small amount of money is a great way to get your foot wet and get a feel for investing with limited risk attached. In fact there are financial houses that let you open accounts with small amounts of money with the opportunity and option to build on your investments as you become a more experienced investor. Eg in Jamaica, you can open an account with as little as $10,000 JMD at some financial institutions. So there’s no need to feel like you can only invest if you have large sums of money. You don’t need to have a lump sum to start investing.
By starting small, you protect yourself and are less vulnerable to market fluctuations. You won’t be as affected by dips and turns in the market. It also gives you the opportunity to get used to the investment market and learn how to better weather the storms.