When it comes to investing a lot of people struggle with where to start. And yet if that leap is not taken people hinder themselves from living a secure and comfortable life. Here are 5 investing tips in order of their importance because ditching that Starbucks coffee cannot be considered real financial advice.
1) Always expect an emergency
This one is so basic but an emergency is an event that no one can foresee, thus saving money for an emergency is the first thing everyone needs to do before investments are made. Whether you have a full-time job or not, set aside an emergency fund, even if this means that you have to live below your means. The majority say 6 months is enough for an emergency fund, but given how many people have lost their jobs during the pandemic and still struggle to find a job, you should at least set aside one year for essential living expenses. If you have kids and a mortgage I would even advise you to set aside an emergency fund that is equivalent to more than 3 years, the more years you can live off your emergency fund the better.
2) Save automatically
The moment you receive a regular income your biggest financial change should be automating money to your savings account. I don’t come from a wealthy family, but watching how my parents get to live securely because they automated their savings while they were working and now during retirement, allowed me to compare the lifestyles of those who have savings and those who have not. The fact that they can go to the grocery store without having to worry about the final sum on the bill, while still keeping in mind their budget for the month, comes with choosing a lifestyle that is lived below their means.
This shaped the lifestyle I choose to live but is also comes with not wanting to live from paycheck to paycheck, and the goal to reach financial independence faster. Material things and showing off what one can afford is not how I was raised and it is simply how I want to live – you do you. Some say it has something to do with my Filipino background and being Ilocano, there is this stereotype for Ilocanos that we are called kuripot (=thrifty) but in reality it just means Ilocanos re-think investments before they make a final choice, and that is how investing actually should be. MW Tip find out in this blog what 5 bank accounts you need.
3) Invest in assets
Everyone has a different lifestyle, hence investing in assets has for everyone a different priority. However, investments come down to knowing which assets appreciate (=increase in value over time) and understanding which assets can be a liability (=asset acquisition can also be more expensive than the profit made). Real financial advisors openly communicate that before an asset can increase in value, an investment needs to be made and they also know that not all investments turn out to be profitable over time. Simply explained before real estate becomes a profit, the majority of individuals need to take out a loan. Before stock investments become profitable, one needs to invest money and understand financial statements, or know someone who can make successful investments.
Most importantly though, whatever investments you make, assets that take money out of your pocket are in reality an expense. A house bought that you haven’t sold yet is still an expense, even if the value may have appreciated over time. A condo rented but not sold is also technically still not a profit because you have not sold it yet, unless the rent received is break-even to the purchase price of the condo.
4) Get a financial advisor
Legitimate financial advisors will look at your assets and liabilities from a rational point of view, from a black and white perspective. People tend to look at their money with emotions because for the majority, wealth is hard-earned money. Emotions can lead to making wrong decisions, always remember that not all investments can lead to wealth and that you should always have the final say about your money, even if you consult a financial advisor.
A good financial advisor should have your best intentions in mind and should be able to give you advice based on what you want to achieve. If you don’t have specific financial goals, an advisor cannot give you accurate advice.
5) Choosing the lifestyle you want to have
Lastly, examine whether your investments and savings allow you to live a secure or a comfortable lifestyle. A secure lifestyle is more focused on the lifestyle you want to have in the next decade versus a comfortable lifestyle, which from a timeline perspective, goes beyond retirement. First focus your money and investments on a secure lifestyle. Once you can maintain that lifestyle and have become more financially educated, focus on a comfortable lifestyle, if this is what you believe to be important for you. Regardless of where and how you start, always remember that investing takes sacrifice, research and time.
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