Financial Blog

At some point, we’ll realize that our monthly paycheck just won’t be enough to bring us closer to our ideal financial goals. Yes, a higher salary can bring us closer, but we should always keep in mind that we can’t keep working forever. 

So what should we do? Hustle our way to our financial goals? Here’s a better idea, invest early. Depending on how you do things, investing can either be your financial saving grace or a hindrance. Prepare wisely before you start, by considering the following:

What’s my current financial state?

Anyone can invest, but not everyone does it? Why? Because some people simply can’t. Depending on the type of investment you take there will always be a barrier, often financial, present. Just some examples of these are the minimum investment amount for corporate bonds, and the minimum board lot for stocks, and the associated risk levels that vary depending on the type of investment. 

Before you start investing, take the moment to ask yourself if:

• You have savings for large, unexpected expenses.
• You have extra cash each month.
• You want to grow your wealth.
• You realize that one day you’ll want to live off your investments, not your earnings.
• You welcome excitement in your life.
• You’re willing to learn through your experiences.
• You have the time and inclination to read about investing.

Do I have a financial roadmap?

Benjamin Franklin once said “Those who fail to plan, plan to fail”, and no situation better exemplifies this saying more than when applied in finance. 

A Financial roadmap is a visual representation of a person’s financial journey. To be precise, it helps map out a person’s long-term plan and provides the tools, information, and structure necessary to organize a person’s finances and make the most out of the resources currently at their disposal. 

It can help answer a wide range of questions, both short and long term, including:

• Where does all of my money go each month?
• How do I get ahead financially?
• What do I need to do to retire comfortably?
• How can I afford to work part-time, have a baby or start a new business?
• Can I manage the expenses of buying a new home?

Know your investing comfort zone

“Never invest in what you cannot afford to lose” is one of the common tips thrown around by more experienced investors to those starting out, and with good reason. 

With the rise of digital banking and financial services, opening an account and investing has become so easy that practically anyone can do it. This comes at a price however, as investing becomes easier, the chances of less informed people stumbling on risky investments are becoming more and more prevalent. After all, “high risk, high reward” is a common saying. 

If you are young and have a stable job, you might be willing to invest in more unusual ‘high risk, high return’ options. However, as you grow old/retire, you might not have a job or primary source of income and hence you might depend on your retirement fund for meeting your expenses. Here, you may not be willing to take a higher risk and choose safer investment options.

What investments are available to me?

When it comes to investments, there’s no such thing as a one-type-fits-all. Every investment has a corresponding risk, and reward. And this usually falls to the level of risk a person is assigned to, often by the banks. 

A simple model you can use is the Investment Pyramid. 

In the pyramid, we can visually determine the investment options available to us based on the risk level.

Do I have an emergency fund?

Like it or not, there are times where even the best laid out plans are set aside due to unexpected situations. Got laid off from your job? Maybe some unexpected illnesses? Or even as simple as urgent home/car repair.

Another thing you should do is to create a safety net, after all, regardless of how safe your investment may be do remember that there are always risks involved. One thing you can do to prepare is by creating an emergency fund.

Get health Insurance

An investment is meant to protect your future and current finances. However, no matter how much we protect our finances, if we get sick, it will be all for nothing. So better to get insurance while you’re at it.

Settle your high-interest debts (like loans and credit cards)

Loans and credit cards should be among the first things you need to settle, or at least double down on, before you start investing. Specifically, any debt with an interest rate equal to or above 8% since, realistically, what you’ll earn from your investment in terms of interest will be more likely to be the same in terms of interest. 

It doesn’t make much sense to invest if the profits that you make on your investments are lesser than the interests that you pay on your debts. For example, if your returns are 12% and you’re paying 14% as interest on your previous debt, then overall you’re at a loss. Here, instead of investing, it will be better to use that money to pay back and become debt-free.

Before you invest, minimize or try to settle your debts. The interests from them alone will kill your investments. 

Find a trusted institution/credible financial advisor

Some of you will want some hand-holding. It is where the services of a good financial advisor can be quite valuable. An advisor or financial planner can help you determine what types of accounts to use, how much to save, what types of insurance you need, and what investments to use. When you find a good financial advisor, you’ll also find they will teach you about investing, so you learn as you go.

Unless you have advanced knowledge and experience as an investor, you should probably seek help. Statistically, individual investors will find it hard to create sustainable, tax-efficient growth without the help of a professional.

Open a bank account that handles online and automatic transfers with ease

Why is online banking important? For starters, you are going to need to make automatic transfers if you want to set up a regular investing plan. Automation is a key process in determining your investment’s success – you’ll want your plan to be on autopilot. 

You’re also going to want the capability to access and monitor your investments regularly at any time from anywhere and to make sure that your money is successfully being transferred out of your accounts and into your plans. Through online banking, you’ll be able to do this from the convenience of home.

Don’t get sucked into investments that are “too good to be true”

High risk, high returns is a phrase that keeps getting thrown around by investors and even institutions. As investors, an important skill to learn is spotting and separating genuine high-risk, high-reward investments from investment scams. 

Here are some things to keep an eye out for: 

1. Fishy broker tactics
2. You have to borrow money to invest
3. You cannot cash out (or are encouraged to do so)
4. The investment seems too complicated
5. The investment is unregistered
6. The returns are exceptionally high

Read more: How to spot investment scams.

Final thoughts

Investing isn’t easy, and there will always be risks involved. But given the inflation and rising cost of goods, sometimes a simple paycheck might not be enough to help you reach your financial goal.