Awesome! You’re finally thinking of investing, welcome to the family!
Here’s the trick- before you start investing, you need to ensure your preparedness; so you don’t end up losing your hard-earned money. These are some questions you need to ask yourself:
- Do you have a stable source of income?
- Do you have an emergency fund?
- Have you paid off your debt?
- Do you know about investing?
If your answer to all these questions are ‘YES’, then kudos to you! you’re ready to join the big leagues and make some cool money for yourself. But, if you’re not too sure of where you stand, here’s a breakdown of what these questions really mean.
- Do you have a stable source of income?
Imagine building a house starting from the roof, that’s absolutely impractical. Same with trying to invest without having a stable income. A steady income allows you to attend to your needs such as food, housing, health etc. Without satisfying these needs, it is difficult to stay faithful to your investments.
With a stable income, you can do much more than fulfilling your needs, it is the foundation of investing. Without income, there is no wealth to be built.
2. Do you have an emergency fund?
Emergencies are unexpected (usually unpleasant) events that you can’t predict and therefore can’t plan against. Your emergency fund needs to be accessible and significant enough to bail you out of contingencies
While you’re investing, not having an emergency fund could mess your entire investment strategy up. This is because you’ll either get tempted to use funds from your investments(i.e. selling part of your assets) or borrow money to attend to the emergency.
If you choose to use your investments, you might not be making a practical decision and might end up selling at a price lower than what it cost you. That’s a loss! And if you decide to borrow, that simply means you are dedicating a large chunk of your future income into paying up debts with ridiculous interests.
3. Have you paid off your debt?
Debt could hinder the amount you can invest. This is because debt is an obligation. Debts can either be high interest or low or zero interest. Debts with high interest accumulate faster and should be paid off as soon as possible. However, debts with low or zero interest like mortgages can be managed alongside investments.
“A fool and his money are soon parted.”
4. Do you know about investing?
Are you indeed ready to invest? If you can’t tell the difference between one asset from another? Can you at least recognize red flags and not fall for scams advertised as investment opportunities?
If you can’t, you shouldn’t attempt to invest just yet. Take the time to learn about investments in general: the different asset classes, their features and other related concepts to investing.
As a rule of thumb, if you can’t explain an investment, you should not be investing in it.
