How to Invest for First-Timers
The basics are simpler than you think
So you want to start investing?
Good! Investing is a great way to build your wealth and become a more well-rounded individual in a world where money is king.
Unfortunately, many people are hesitant to get started and it’s no wonder why. Schools teach more advanced trigonometry to 14-year-olds than proper money handling. Once people have reliable income, they are ill-prepared to start investing. They don’t know where to put their money or how much to save. They think you have to start making a massive portfolio and chasing hot stocks right away.
Instead of being overwhelmed by the concept of investing, the best advice I have is to focus on the basics of it all and put them into action.
Create a budget and then invest from what that budget allows.
But work backward in your approach. Making investing your top priority, instead of waiting until the end of the month to scrape together some money to invest. Look at it from a perspective of how much money will expenses take away from your intended investments, and not the other way around.
If you don’t, it’ll be much easier to succumb to the temptation of spending money on things you don’t really need. That’s why it’s imperative to have your investment strategy predefined and allocated before you even begin investing.
An easy method that I recommend for doing so (particularly from young folks leaving college) is setting up two accounts, a savings and checking account.
I’m aware you don’t get great returns from a savings account, but it’s the discipline in the structure that matters. Have all of your wages deposited directly into the savings account. And then, based on the budget you’ve defined, transfer out only what you’ve proven to yourself you need to live on.
There will be a bit of trial and error to determine this amount, as well as unforeseen expenses. You do need to have your fun, do things that keep you happy at the moment, but build everything into your budget. What matters most, is that you make sure what needs to be left in the savings accounts, STAYS in the savings account.
In this scenario, you’ll find that you’ll save more, and you’ll have better control of your expenses going forward.
Save and invest first, spend second.
If you don’t feel you have the self-discipline to keep this system up, then find a trusted parent/mentor to be the signatory on your account. This way, anytime you need to take money out of savings, or away from investments, you have someone to report to. You’d be shocked at how effective this simple action is.
Whenever temptation strikes to purchase something silly, you’ll be forced to pause and think through that decision because there now is someone holding you accountable. The mere act of contemplating the expense, and how you’ll need to justify it, is enough to prevent following through with it. As the signatory of multiple accounts, I’ve seen this happen countless times without ever having to say a word myself.
Some fun purchases are certainly permissible and important for enjoyment, the point is the exercise creates a discipline. It creates what I call a compliant environment, which allows for maximum savings and therefore maximum inputs to your investments.
Establish the discipline to save first, and then begin investing it responsibly on a consistent basis. It does not take much, but you’ll quickly understand the value of compounding interest.
Good luck!
Aaron Webber is a serial entrepreneur and CEO of Webber Investments LLC, as well as a Managing Partner at Madison Wall Agencies.
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