When you think of investing, you may think of giving thousands of dollars to a company or stock and hoping for a great return. However, depending on your financial situation, you may only feel safe investing in retirement or savings accounts.
However, you can start making small investments as you learn about the financial moves that work best for you. As you get more comfortable, you can make larger investments in the right stocks and companies and make a significant profit.
Here are five important things you must know and learn before you start investing.
Your Net Worth Should Be a Priority
Your net worth is the total value of all your possessions. This includes your car, your home, and any valuables you can resell such as expensive furniture or jewelry. Your net worth also includes your checking and savings accounts, your investments, and all of your debts (i.e. mortgage, student loans, credit cards).
It’s important to focus on your net worth and how you can increase it. You can boost your net worth by paying off your debt and not wasting your money on purchases you don’t need. Of course, improving your income by getting a higher paying job can increase your net worth as well.
You Should Pay Off Your High-Interest Debt
If you have any debt that has an8% interest rate or higher, it’s important that you pay down your debt before you start investing. Your investments will be much more rewarding when you don’t have to use your profits to pay off debt.
You can do this by making bigger credit card payments so you can get rid of the debt sooner. Once your credit card is paid off or current, you’ll receive more returns when you make purchases.
It’s also essential to learn about convertible notes, which are short-term debts. You may be wondering "what is a convertible note?" A convertible note debt is short-term but can be transferred into equity.
When it comes to financing, convertible notes can turn into preferred stock shares. So, when investors loan funds to a business during the first funding round, the investor receives shares instead of getting their money back with interest.
You Have to Get Rid of Bad Spending Habits
When you look at your finances every month, consider your income and the expenses you have to pay from that income. The money that remains is "the gap," or your income minus your spending.
Your "gap" money is what you can use for your investments. You can increase your gap funds by spending less money or earning more income.
You Should Have a Cash Emergency Fund
Even if you have a solid financial plan, unexpected events sometimes happen. Even if you have a great investment plan, you’ll have to make some changes if you or a family member get sick, your car breaks down, or you lose your job.
You may be tempted to pay your bills with credit cards when you’re in a financial emergency. You’ll be more susceptible to identity theft and your bank may cancel your credit cards if you’re in financial trouble.
Even if your card isn’t canceled, you’ll still be responsible for repaying the debt. This is why an emergency cash fund is important. You can set up the account online and safeguard your money so you can access it in case of an emergency.
other valuable tips:
You Should Determine Your Major Life Goals
When you want to start investing, you should have a clear goal in mind. If you know your reason for investing, you’ll think about the timeframe for investing and the risk you’re prepared to take.
It may not be best to start your investing career in the stock market, since the market changes often and there is short-term financial risk involved. Instead, start investing in your personal goals. Think about what you’re going to do with the money and how long you plan to live off your investment returns.
For instance, if you’re investing in a new home, car, or savings accounts, determine your motivation for wanting these things and provide a timeline for yourself to help you stay focused.
Once you’ve answered these essential questions about investing, you can come up with a plan for investing and see the returns much quicker.
Image Credit: learn before you start investing by envato.com
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