5 practical tips before you start investing

Investing is one of the ways you can grow your money and help you achieve financial independence. It can offer growth and capital preservation that can help you achieve your financial goals. But before you dive into any investment vehicle out there, you must remember that there are things you need to consider and study first to avoid headache and trouble in the future.

in this article, you’ll going to learn 5 practical tips you need to know before you start investing your hard-earned money. By knowing and implementing these tips, it can save you from trouble that might happen in the future.

Here we go.

5 Practical tips you need to know before you start investing

1.Do not invest on the things you don’t understand

“High returns in short period of time” or “double your money in a number of days” are some of the lines caused other people lose their hard-earned money in just a short period of time. They blindly gave it all without knowing what and how that investment offer works.  After a couple of months/years, the investment partner, person or company is immediately gone with the hard-earned money. Sad but true, right?

This is not new, we always read and see the news with new scam victims crying for help to get their money back. Year after year it happens and most Filipinos never learned. They got tempted to “get rich quick schemes” only to know it will lead to a trap in the future. How do we avoid this?

Simple. Do not invest on the things you don’t understand. That’s always been the rule of thumb!

Doing your due diligence is always a critical step to a successful and profitable investment. Know the investment first. Study how it works. Attend seminars, read books, read blogs, watch videos. Ask professionals with good track record. These are just some of the things you can do to avoid being trapped by scammers. Always remember that investing in yourself is the best investment of all time.

As what Sir Aya Laraya said, “aral muna bago invest”.

2.Have an emergency fund

Knowing how the investment works is still not enough to save you from future trouble and headaches. Another important thing you need to consider is to have a solid emergency fund. Emergency fund is a savings that you can pull out any time in case of “real life emergencies”.

We all know that all investments carry risks. And the higher the return of an investment, the higher the risks. It is wise and advisable to have something you can pull out and use in case unexpected happen. Why? Because you cannot just pull out or liquidate your investment if emergency arises. What if the current value of investment is down? What if it is holiday? What if it is midnight? These things are extremely important to consider.

A safe and good emergency fund is at least 6 months equivalent of your monthly expenses. This way, you can peacefully live and not worry in case something happen. And in case something happened, you have 6-months buffer to live and continue your standard of living while finding and building new income.

3.Have a clear and smart investment goals

So you have built your emergency fund and somehow understand the investment, what’s next? One of the most important, you need to have a clear and smart investment goals. A smart investment goal should be Specific, Measurable, Attainable, Realistic and Time-bound (S.M.A.R.T goals).

Having a clear investment target will serve as your destination in your investment journey. Will it be for your wedding? Retirement? Education? When? How much? How will you do it? These are some of the basic questions you need to answer in order to set a clear and smart investment goals. By having this, you have a clear roadmap where you’re heading.

Of course, clear goals and plans are not enough. You have to take action and work your way through those goals. Focus, discipline and commitment are the keys!

4.Invest only what you can afford to lose

This tip particularly warns you to manage risks. It is advisable to only invest money you can afford to lose. Why? Because as we always said, every investment carries risks.

Make sure you know yourself well and how much risks you can tolerate. Invest according to your risk tolerance in accordance to your investment goals. That’s called smart investing!

It is not advisable to invest in high risks investment only to realize you cannot sleep well at night thinking about losing that investment. Make sense?

5.Re-invest

When the time comes that you’re going to reap what you saw and have achieved your investment goals, one thing to consider is to re-invest. Yes, invest again.

What does it mean? It simply means re-investing the remaining or allocating new budget for investing again. Setting new investment goals and timeline. Creating new plans. And then executing it again. This will keep growing your hard-earned money. Sooner than later you’ll be financially free.

These are just 5 of many tips you need to know before you start investing. If you have something to add, share them in the comment below.

By knowing these 5 practical investment tips, you now have the idea how you can create your investment plans and start working on them.

Investing is a journey. A long-life journey. By carefully taking one step at a time, you’ll moving closer to your goals.

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This article was written by Billy Ramirez. He’s an I.T, a dad, blogger and aspiring entrepreneur. He blogs at Personal Finance Tips and shares basic and fundamentals of financial literacy to every Filipinos.