Many investment professionals will tell anyone that they should start investing their money immediately. This advice does have some merit to it: compounding interest means the earlier your money is invested, the larger the growth will be in later years. Unfortunately, this advice really only works in the real world. After all, if you need to pull out your money because of medical emergencies or other real world problems, then all that interest will never materialize. Further, if you find yourself paying off high interest debts while you experience low interest gains, the money could actually be better used in a different place.
Before you start investing your money, you should already have a firm financial foundation to stand on. This is because once you invest your money, it needs to stay invested. Your money should stay at minimum in your investment for ten years, but ideally should stay until you absolutely need to withdraw it for retirement. If the money does not stay invested, then all those compounded gains that the investment brokers talked about might as well be imaginary.
The first thing you should look at is your emergency financial fund. This is critical, because this is what you will rely on if you lose your job, get injured, or any other one of a thousand scenarios that could leave you financially hurting. In the old days, it was said that you should have three months of household expenses saved. These days the economy isn’t that good. Today, many analysts say you should have anywhere from eight to twelve months of household expenses in your emergency fund. This is because, due to the economy, it’s possible to be out of work for a significantly longer amount of time than it used to be. When considering your financial future, the first thing you should be doing is saving your emergency fund.
The second thing you should look at is your debt picture. It makes absolutely no sense to have $10,000 invested at 6% a year when you’re paying 16% a year for $5,000 worth of credit debt. You need to pay off any debt that has a greater interest rate than your investments before you begin to invest-otherwise you are losing money in the long run. Good debt such as mortgages and low student loans can be forgiven from this equation, as they generally have a low interest rate and are meant to be paid off over a long period of time.
Finally, you should prepare yourself to take the investment plunge. By investing, you need to emotionally detach yourself from the money that you are intending to invest. You must be willing to not touch this money for at least a decade of time, so it needs to be money that will not be needed. You need to commit to the ups and downs of the market-because the market will go both up, and down. There have been many market crashes, but in general, the market always recovers. Those who panic and sell at the bottom often lose almost all of their initial investments, while those who stick it out are the ones that profit.
Investing is an important part of your overall financial picture, but it is only one component. In order to build yourself a firm and successful financial future, you must consider all aspects-emotional and practical-of your investments before committing. One great resource is ANZ Share trading.
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Written by Jon the Saver
