“How to know you are ready to invest”
There are two parts in this question.
First part of the question is should you even start investing? Answer is 100% YES if your dream is to be financially free, you are planning it for the long terms, and it should start as early as you can. In fact I always think that people should have start learning all about investing as soon as they know how to read. Answer is NO if you wish to work for an income for the rest of your life and worrying about your retirement fund will outlast you.
Second part of the question is when will you know you are ready to invest? What needs to be ready before you put your first penny into the stock market? Not as a speculator or a gambler but as a profitable investor. When I was in my high school, I saved up a few thousand dollars and eagerly look for a way to make money with these savings. I kept poking around without any plan or knowledge. As result, I lose money and wasted my time because I was never ready for any investment at that time. So I want to share my experience in this post on how you know you are ready to invest.
There are 3 things to check out before you start investing.
First thing and the most important thing before investing your money is investing in yourself. Read and learn. The first thing I did was trying to understand how this financial market works from free YouTube videos, Google and free seminars. Which market suits my personality most, eg Forex, Equity, Cryptocurrency, Bonds, Options. I started with trading Forex because I thought investing is making money by analyzing charts, I couldn’t differentiate trading and investing at that time. I learned about trading strategies, setting up trading plan, how to apply and analyze trading indicators, how to do my trading journal, how to read candlestick from free YouTube videos. After opened up my trading account, I immediately applied and tested those strategies. Sooner or later, I found no conviction in every decision I made, I couldn’t sleep well at night, and I felt like I was just gambling, hoping the market will move towards my direction. That’s when I knew I am a “fact person”. I need to understand it’s fundamental, what drives the price, find conviction to hold my trade if I want to make money from it long term. But I have zero accounting knowledge, so I kept looking for free knowledge from world wide web. It took me quite some time to piece everything together and I was getting impatient. Finally, I took the short cut and enrolled myself into my first stock investing online course. If I knew the money I spent on my course fee would had gave me a 20x return in a year, not including all those opportunity cost and good night sleep, I would have just throw my money in as soon as I can. Then I bought myself some books because I found it helpful when it came to controlling my emotion. Conclusion here, just invest in yourself, you might do it differently from what I did, but keep exploring, keep learning and keep improving yourself each day. Don’t just blindly follow anyone’s footstep because you will never find any conviction in your decision. Only invest when you have a plan that you are confident to follow.
Second thing needs to be ready before you invest — Emergency fund. This is your rainy day fund. This is your financial safety net for future mishaps or unexpected expenses, eg job loss, car accident or leaky roof. How much for that? For people who spend within their monthly income, I personally suggest it to be 6 months of your monthly net income. For example, if John’s monthly net income is $5,000, he should have $30,000 as his emergency fund. For people who spend more than their income, I personally suggest it to be 6 months of his current expenses. For example, if Jack’s month income is $5,000 but he overspent it every month, his monthly expenses is $6,000, then he should have $36,000 as his emergency fund. Only invest after your emergency fund is ready. If you invest before your emergency fund is ready, you are just risking yourself. You might be tight up in situation whereby you are forced to liquidate your position from stock market when you need the cash urgently. And that hurts your return of investment. You might feel wasteful for the cash to sit in your bank doing nothing, no return generated every year other than the little interest given by your bank. Well, explore on money market fund or high yield saving account. It provides better return than normal saving account and more importantly, it provides liquidity. Conclusion, make sure you have a sum of cash placed in somewhere high liquidity before investing.
Third thing needed to be ready before investing — Insurance. A lot of people tends to ignore this part. But insurance is very important as you wouldn’t want to spend your money paying to doctor in one shot after saving for years. I am not an insurance agent, and I am not going to recommend any plan here, do your own homework. I summarized it into 4 main categories that you need focus on when you shop for your plan: Life insurance, hospitalization, critical illness and personal accident. Compare the plans between different insurance companies. Get the best quote with highest protection coverage. If you are already an investor, can explore on term insurance. Quick tips: I used to buy one combo insurance plan that included all but after some while, I realized that I could get a better protection coverage with lower premium if I bought my life insurance plan and medical plan separately. And always separate your saving plan and insurance plan too. Some insurance agent will push you into buying these type of plan because they will receive high commission for doing so. Never buy it! Why I know? Because I naively bought two of those and lose a sum of money and those plan provides me shitty protection. So make sure your insurance is in place before investing.
These are the 3 important things to check out before investing. Once you had all these 3 checked, it’s time to make your money work for you.
