3 Steps and Strategies to Start Investing Young

If you were not fortunate enough to have parents who share my view on this, you will have “re-parent” yourself into good investing habits, at whatever age you have reached now.

Step 1: Eliminate Consumer Debt

The first step with investing is to have something to invest. This might seem so obvious as to be not worth mentioning, but actually, it is more common than you might think for me to encounter someone with maxed-out credit cards, multiple personal loans, and a car payment, asking me how they can get into investing.

In order to have something to invest, you income must exceed your expenses. The difference between your income and your expenses is the only money you can truly say that you have “earned”. Everything else may have passed through your hands, but if it didn’t stick, it has no future value for you.

If you want to get into beginner investing, the first step is to apply your surplus – the income you don’t spend on expenses – to reducing your debts. The only debts you want to have as an investor are investment debts – mortgages on investment properties, for example. Pay off the credit cards, and cut them up!

Step 2: Start Saving Money for Your “Safety Blanket”

Once you have eliminated your consumer debt, your next step is to accumulate your “safety blanket” money. This money should be kept in a high-interest savings account, which you can access with immediate or 24-hour access. The purpose of this money is to allow you to relax and feel that you have the expenses covered, should the worst happen and you lose your main sources of income.

The amount of this money will vary from person to person. At a minimum, it should be three months of the outgoings required to maintain your current lifestyle. Ideally, it should be 12 months. Once you reach the three-month amount, you can start on other investment strategies, but keep adding to your safety blanket regularly until it reaches the 12-month goal.

Step 3: Accumulate Your Investment Nest Egg

Once you have reduced your expenditure, paid off your debts, and saved up a safety blanket, you are ready to start accumulating your investment nest egg.

Depending on your age and risk profile, you will do different things with this money. If you are young and reckless, you can afford to experiment with highly volatile investments like junk bonds, small cap shares, options, commodities, and foreign exchange.

IF you are older, or more cautious, save those investments for a tiny fraction of your portfolio, and put the bulk of your money in blue chip shares, AAA rated bonds, and high-quality real estate investments.

Money Management reference:

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