Things to Consider Before you Start Investing
Before you start investing there are several steps that you need to take before jumping into the world of the stock market. Most people are tempted to make a living out of investing and just end up losing even more than what they started with in the first place.
I have gathered a list of steps to take before you start your endeavor into the financial markets.
Establish your priorities.
Many people jump into the belief that the stock market is their easy way out and they usually tend to forget what their money is for in the first place. Take time to evaluate what you consider to be the most important goal in your life and then work your way down. In this approach a person might consider that “First comes God, then family, then personal responsibility, and then investing”.
Before you start investing make sure that your top priorities are not left out because of your investments. Do I have life insurance for my family? What about the donation that I give every year? Do I invest the money I use to pay my credit cards faster (money above the minimum)? What about the business that I always wanted to start? Those are some good questions to consider before you start investing.
Draw a personal financial map
Before you start putting money on the stock market is important to draw a financial map to help you determine where are you standing in respect to your personal finances. Investing with leveraged money can be extremely risky therefore you need to consider how much money you can put into investing without hurting your overall lifestyle.
Take a time to sit down and calculate your income and expenses each month. Figure out how to budget and most importantly figure out how much money you can set aside each month to continue investing without hurting your main priorities.
Pay off your credit cards
There is nothing better than being debt free. If you have high interest credit cards you should focus on paying those first before investing. The interest these credit cards may charge, can be substantially higher than the returns you might earn while investing.
After establishing your personal financial map, start by creating a strategy to reduce drastically the amount owed in your higher interest debts. If the amount is too high that will prevent you invest in the stock market other measures can be applied. You might opt to reduce your credit card debt substantially and then start investing in the stock market, or perhaps pay a little on top of the minimum and invest the rest. This is a matter of personal choice and is debated in a post by John from Frugal Living (A website that shows you how to live frugally) “Should you pay off debt or invest in the stock market first” Check it out to continue the debate on this topic.
When it comes to investing you can never learn enough. Investing is a constant learning experience, besides learning from the mistakes you will make along the road, you can always strive to learn more to minimize your losses and eventually become a better investor.
Before you start investing, learn all the basic concepts such as: P/E ratio, P/B ratio, stop-loss orders, limit orders, etc. (You can learn all the basic concepts in our FREE Investments Class HERE). This will not only ensure you start with the right foot, but it will also help you make less mistakes on the road, that will eventually lead to making profits.
Read books, stay on top of financial news, there are plenty of webpages now a days that can help you learn the stock market faster than ever before. I have gather a list of websites that will help you get there in my Resource Page.
Create a Strategy
I can’t stress enough how important it is to build a strategy before you make any investment decision. Successful Businesses and CEO’s are characterized by always performing successful strategies. It seems that success comes when you have well thought plan. When investing a strategy to get in or out of stock should be crucial for every decision. You should know when you are going to sell before you even buy a stock.
Where people fail when they start investing is because they don’t own a strategy. People seem to hold their stocks even after a huge gain is presented. Remember that the key to make money in the stock market is to “Buy when stocks are low and sell when they are high”
Owning a strategy can help you maximize your profits as much as it can help you minimize your loses. Another benefit of owning a strategy is that it will make you keep a cold head when it comes to investing. This can help to get our emotions out of the way when it comes to making decision.
Figure out how much money you are willing to lose and how much money are you willing to gain (Keep it reasonable). There are excellent strategies you can come up with, like hedging, scale investing, dollar-cost averaging. You can learn a couple in our course Investing Strategies.
When I first started investing I took a massive hit on my portfolio just to teach me the most valuable lesson of all. Enter your email below to get more of the full story.