Whether you’re from Main Street or Wall Street, you can invest in stocks. Here’s how to start investing, even if you’re not rich by any means.
Investing is far from a get rich quick scheme. Investing requires a long-term mindset to achieve success and profit. But, similar to get rich quick schemes, not all investments will pan out.
Knowing how to start investing is the first step in achieving financial freedom. Financial freedom requires long-term and short-term strategies. You’ll need to be able to first meet your current financial needs before you can set aside money for investing.
However, there are many ways to set aside money to invest. But, if you’re like many Americans who live paycheck-to-paycheck, you may think that setting aside money is impossible. With the right knowledge, guidance, and strategies, you can learn to reduce your expenses and improve your finances.
Financial literacy is an asset. Investing is a part of financial literacy along with budgeting, money management, and banking. Most of us weren’t taught about financial literacy, which may have led us to accrue large amounts of debt.
There’s always time to learn more about your finances and improve them. And, by knowing how to start investing, you can begin to feel more at ease about you and your family’s future. Read on to find out more about how to start investing.
How to Start Investing for Beginners
Achieving the American Dream has become synonymous with accruing debt. As a nation, we are encouraged to take on debt for various reasons. Sometimes we just can’t avoid it.
For example, we may need to purchase a car or borrow money to attend college. These types of debt, however, can hinder our financial freedom in the present.
This is especially true if we purchase something that is well beyond our means. Such is the case when we purchase a car with a high price tag and high monthly payment. We may be financially able to pay for these debts, but not leave ourselves much income once everything else is paid.
But, the more we learn about financial matters, the more financial freedom we can have. It may take making some sacrifices, but in the long-term financial freedom can help us to feel less stressed. Explore the following information to learn how to start investing to improve your financial life.
Analyze Your Expenses
Before you start investing, you need to analyze your current expenses. First, take account of how much income you’re receiving on a monthly basis. Then, add up your expenses each month.
Your expenses include all outgoing money. Determine how much money is left over each month. If there is money leftover, figure out how much you can aside to invest each month.
Create a Budget
After analyzing your expenses, it’s recommended to create a budget. A budget will help you to invest long-term. This is achieved by creating a manageable and predictable money management plan.
One way to budget is to set aside percentages for each expense category. For example, you could set aside 55% for necessities, 10% for debts, and 10% for savings. For the remaining percentage, you could allocate 15% for leisure and 10% for investments.
Be patient with yourself when adjusting to a new budget. Try to cut down on any unnecessary expenses that don’t line up with your current and long-term goals.
Invest in a 401k Plan
One of the best ways to start investing and saving for retirement is by signing up for your employer’s 401k plan. 401k plans are tax-deferred investment opportunities. Each paycheck, a designated percentage you select will be deducted to fund your 401k.
Your employer may also match your 401k contribution up to a certain percent. For example, your employer may match up to 3%. This means that each month you’ll be receiving additional investment income at no cost to you.
Research the Stock Market
The stock market is complex. There are many factors that influence the stock market which is out of your control. The stock market also includes a wide variety of investments and investment opportunities.
Educate yourself about the stock market. You should also keep up-to-date with stock news. Before you make any direct investments in the stock market, understand how the market works and how it fluctuates.
Contact a Financial Advisor
A financial advisor can help you to create an individualized investment plan. They can also help you to manage your money and make financial suggestions.
Some financial advisors can also manage your investments for you. However, they may charge you a commission fee and other charges to do so. Before committing to a financial advisor, learn more about their investment policies and all the fees associated with investing at their company.
Know the Costs
There are two types of stock on the market. Individual stocks and stock mutual funds. Mutual funds, like a 401k in many cases, allow you to invest in multiple investments at once. This helps to diversify your portfolio and tends to lower your overall risk.
You can also invest in less risky investments such as bonds. However, these investments typically yield less than other investment options.
Individual stocks are riskier. You can invest in multiple individual stocks to diversify your portfolio. This will take time, effort, and knowledge, however, to do so successfully.
Stocks are sold at different prices. The price of each share is based on how much a company’s stock is worth on the market. Some stocks may be over $100 a share whereas others are less than a dollar.
How to Start Investing: Taking Action
Knowing how to start investing is the first step towards long-term financial freedom. The next step is taking action and creating an investment plan.
When creating an investment plan, take account of all your current expenses. You should also write down your long-term financial goals. For example, how much money do you need to retire?
Speak with a financial advisor before committing to an investment plan. Doing so will ensure that you’re making sound financial decisions and investing in the best way for you.
Want to learn more about budgeting and money management? Check out our blog to learn more.