7 Things To Do Before You Start Investing

By Brad Kingsley

 

Investing is great. Besides starting your own business, it is one of the best plans for growing your net worth and achieving financial freedom! But there are a few steps to take before you get started. If you don’t set yourself up for success by taking care of these items first, you’ll be setting yourself up for failure down the road.

Once you’ve checked off the items on this list and are ready to start investing, we recommend checking out Betterment. Betterment is a low-cost and easy-to-use investing platform. It’s great for beginner and seasoned investors alike. They make investing SUPER easy.

Here is what we recommend you take care of before you start investing…

1. Have A Fully-Funded Emergency Fund

First things first. Unexpected expenses WILL happen. No matter how good you are at planning and preparing, something will happen sooner or later that wasn’t on your personal spending radar. I don’t mean “NFL is starting soon so I need a new TV” – I mean more along the lines of “the water heater just gave out and we need to replace it ASAP”.

These expenses are generally not only unexpected, but they also are time-sensitive – they need to happen “now”. Without an adequate emergency fund in place many people will struggle to cover even a $400 non-budgeted expense.

Financial advisors, financial planners, and just about every financial expert, will recommend having an emergency funds between three and six months worth of living expenses. If you don’t have an emergency fund you should quickly put together a starter emergency fund of $1,000. Then work toward growing that account into being fully-funded with the target amount you decide. (Here is a post to help understand where you should be in the three-to-six-month timeframe.)

2. Know Your Cash Flow (Have A Budget)

When thinking about investing, you need to think long-term. “Investing” for the short-term isn’t really investing – it’s speculating, which is basically gambling. There are any number of uncontrollable factors that can cause investments to go up or down short term, so any money committed to investing shouldn’t be needed for at least five years.

Having a household budget allows you to understand exactly where all of your dollars are going each month. Hopefully you’ve trimmed expenses enough, and/or have good enough income, that each month you have significant “extra” cash flow after covering all of your expenses.

The first thing to do with this extra cash is to build up your emergency fund as mentioned above. After that you should consider if you will have any large expenses coming up in less than five years: Will a new car be needed? Is a child’s college approaching? Might a child get married in the next few years? If there are events like these coming up then start putting aside money for them now – money that probably shouldn’t be invested in the stock market because of the “short” timeline.

The Budget Will Help Determine What You Can Afford To Invest

After you’ve determined any large upcoming expenses, and set aside enough money to cover them, now you can look at your monthly cash flow and determine how much money you want to invest. A very popular and productive investing technique is dollar-cost-averaging (DCA), which means you would be investing the same amount of money every single month (regardless of what the stock market is doing).

If you plan to practice DCA investing, make sure you aren’t cutting your budget too thin. If you have exactly $700 each month “extra”, it might be a good idea to invest $500 rather than the full amount. Give yourself some wiggle room so you can be consistent every single month.

3. Pay Off Consumer Debt – Especially Credit Cards

The national average interest rate on credit card debt in early 2016 is just over 15%. Let that sink in for a moment.

Carrying high-interest consumer debt is one of the largest barriers for people who are trying to grow their wealth and achieve financial freedom. Paying off a debt is similar to getting an immediate known gain comparable to the rate paid.

If you have a $1,000 balance at 15% interest, you’ll pay $150 this year in interest payments. Paying that off to save the $150 is almost like getting a 15% investment return! If you want to get specific, the comparable gain is actually higher because it probably takes about $200 worth of income (pre-tax) to pay the $150 of interest.

There are never any “sure things” in investing, but paying off consumer debt is a “sure thing” because you know exactly how much you’ll save. Knock out these easy things before putting your first dollar into an investment account.

4. Make Net Worth Your Primary Tracking Metric

If you haven’t yet read our post on why net worth is the best measure of financial fitness, you should definitely check that out.

There are a lot of people who earn really high incomes yet spend almost every dollar they earn (sometimes even spending more than they earn). So income of course isn’t the best measure of financial success. But net worth – essentially the fiscal value of your household – is a great measurement. Go figure out what this is now, and also check it a couple of times per year. This is the number you need to start paying attention to when you are working toward building wealth.

We use Personal Capital – a free online tool – to calculate and track our net worth.

5. Clarify Your Goals And Priorities

Managing cash flow (budgeting) is all about balancing priorities – you’re taking limited resources and allocated them to the areas that are most important to you. This exercise is key for your overall financial planning too.

Before getting started on your investing, take a few moments to think about what is really important to you…

If you spend time thinking about it (and honestly many people haven’t) you likely have one big top priority. Some people can quickly tell you what their driving dream is, but many people need to spend some time on this. Understanding what is really important to you can have a huge impact on planning all parts of your life and the actions you take when presented with different options.

Here is an article with a couple specific questions to help walk you through the process of clarifying what is really important to you in life, and then what the goals and priorities need to be to align with that life-guiding vision. I highly recommend that everyone read that article. It isn’t too long but has been known to have profound impact on individual’s thinking about their life.

6. Make Sure You Understand Investing Basics

No one should invest in something they don’t understand. Along that same line of thinking, that means that you should have a basic understanding of general investing concepts. You should know what exactly is a stock, and what is a bond? You should understand the concept of diversification (don’t put all your eggs in one basket). Understand mutual funds, and ETFs, and the difference between them. Make sure you are comfortable with the idea of volatility (fluctuations) and your level of risk tolerance.

Jumping into investing with no idea of what you are doing is very dangerous. Even if you decide to use an investment advisor, you should make sure you understand what they are recommending for you. If something isn’t clear to you, just ask. A good financial advisor or planner is going to take the time to educate you to make sure you are comfortable with the suggestions.

 7. Think Long term

Setting your goals with the right mindset is essential when starting investing. Planning for the long term will help you manage risk as well as teach you the ways of investing through trial and error.  Seeing your portfolio grow and learning the game could help set you up for more riskier investments later on. remember to think long term. And focus on building something that lasts.

How To Get Started Investing

If you really don’t know anything about investing, definitely get educated. You don’t need a deep knowledge to get started, but you certainly should know the basics. Once you understand general principles, we recommend checking out Betterment.

Betterment is an excellent low-cost and easy-to-use investment option. Invest with them and they’ll diversify your money into a portfolio customized for you personally. It all happens automatically. You don’t have to research funds, or calculate percentages, or anything. The investment will go into low-cost funds, including US stocks, bonds, international stocks, etc. For more details check out our Betterment review.

I hope these tips help you get started and help to prepare you for your entry into the investing world.

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Rich Bitch Readers Review

By thefrugalmodel.com

Nicole Lapin is a woman who I’ve looked up to since I started this site. At just 30 years old, she’s been a business and financial correspondent for CNN (she was one of the youngest anchors in history), CNBC and several other major networks. You’ve likely also seen her on talk shows dishing out advice as an expert money commentator. If that’s not impressive enough, three years ago Lapin launched her own production company, Nothing But Gold Productions, for accessible financial news.

You can see why I jumped at the opportunity to read her new book, Rich Bitch – a straightforward, smart guide to handling all of your big money questions and getting your financial life in order. I read the entire book over the weekend and had the opportunity to ask her for some pieces of wisdom myself:

Q/ When I looked into your career and accomplishments I was blown away by the success that you’ve encountered at such a young age. I often feel frustrated by the fact that I haven’t attained any real accolades or reached any of my career goals since I didn’t immediately enter a field that I was passionate about. What would your advice be for women in their 30’s who can tend to lose motivation since they don’t necessarily want to go back to school or start from the bottom, or maybe don’t have a strong entrepreneurial spirit?

A/ Don't wait. Get out there and do it—whatever "it" is. 30, 34, 39 is not old; you're still young enough to make a change, switch gears, and take control of your financial destiny. If you want to be on TV, start a video blog. If you want to be an author, don’t wait for the advance to start writing a book. If you want to be a documentary filmmaker, shoot some video and get to editing. Or if you simply want a raise and/or promotion at the job you're already in, ask for it. It’s much easier to get those big fancy opportunities once you have something to show for doing the legwork and are no longer talking pie-in-the-sky conceptual dreams.

Q/ Although I pride myself on being incredible at saving money and finding creative ways to make it (I’m an eBay junkie too), I am sad to say that I am still completely ignorant of the financial market and how to invest my money. My savings have been sitting in online banks making 1% interest (not even beating inflation, as you mention in the book). I find that this is the case for many women. Two tips that I took away from Rich Bitch are using accessible resources like Twitter to follow the market, and opening virtual trading accounts like Market Watch to get familiar with trading before you invest real money. For a complete beginner to investing, what would you say is the first step (after reading Rich Bitch) to really learning how the market works so some of that fear can be eliminated?

A/ Before you can even think about investing, make sure you have 3-6 months’ worth of expenses in the bank; your credit cards are paid off in full; and you have some extra cash flow available to get into the game.
The good news is that investing isn’t all about complicated numbers, it’s about you and me as consumers. Consumers drive sales and thus profits and thus stocks. So head to the mall for some market research! Pay attention to which stores are busiest, the amount and array of inventory on the shelves, the types of discounts being offered, the customer service experience. Invest in companies you like and believe in. If you have a good experience as a consumer, others will and that particular company’s stock will feel the love.
Once you’re ready to go, there are two different options for getting into the game. The first is going to a discount brokerage, like E*Trade, TD Ameritrade, or Fidelity. These are typically do-it-yourself operations (although some have offices in large cities where you can sit down, talk to a representative, and get help opening the account). They cost around $4-5 per trade. The second option is to head to a full service brokerage, like Morgan Stanley, Merrill Lynch, and Wells Fargo Advisors, where an actual professional manages your account. This option is more expensive (around $150 per trade) so you hope your advisor will add enough value to make up for the extra cost, and, thus not eat into your profits.

Q/ So I passed the Rich Bitch test of should I be my own boss, and it’s at the perfect time since I’m in the process of starting my own business. Although it’s in my field, this is my first time running a business, and I worry about not being trusted or taken seriously because of my inexperience and age. I know that you’ve encountered similar mental roadblocks in your career – so how were you able to maintain that confidence? How do you make yourself trusted especially if you’re not even 1000% confident in yourself?

A/ Fake it ‘til you make it, baby! Confidence is infectious. I might be the least likely person to be a financial expert. I didn’t work at a bank and I didn’t get my MBA. But I learned to speak the language of money, first to myself and then to the world as a financial journalist. With a little chutzpah and sweat equity, you can and will learn your chosen field inside out—and before you know it, you’re no longer faking it. You’re living it.

 

She knows what she’s talking about. Pick up Rich Bitch: A Simple 12-Step Plan for Getting Your Financial Life Together…Finally – it’s an educational tool that’s worth the investment and actually really fun and easy to read. I’m in the process of convincing Nicole that we should be besties. I’ll wear her down eventually. Hopefully without a restraining order.*

 

What’s After Bitcoin?

By Tai Lopez

I get asked a lot “Tai, what’s one of your biggest regrets?” Now, I don’t like having regrets, but I will say there have been plenty of opportunities that I may have missed. One opportunity I would’ve liked to gotten in on earlier is cryptocurrencies.

If you had invested $100 in Bitcoin in 2010, you could have made close to 75 million dollars off of that alone.

Cryptocurrencies and blockchain are an exciting new technology with a lot of potential, but before you start investing, you need to educate yourself. A lot of people have made a lot of money off of cryptocurrencies, but they didn’t just get lucky. The people who make a lot of profit from trading cryptocurrencies like Bitcoin and Ethereum and other Altcoins have spent a lot of time studying the patterns and learning the ins and outs of cryptocurrencies. The great thing is a lot of these people are willing to talk about their strategies and help others learn about cryptocurrencies.

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Start Engine ICO 2.0 Spring Summit

If you’re like me and you can’t get enough cryptocurrency knowledge, I’m going to be keynoting the Start Engine ICO 2.0 Spring Summit in Santa Monica (Friday, April 20). I hope to see you there. It’s going to be a great lineup of big hitters, including:

Patrick Byrne (Founder & CEO of tZero & Overstock.com)
Gil Penchina (Top Investor in Ripple, Filecoin, PayPal, Polychain and #1 Investor on Angel List)
Mark Suster (Managing Partner at Upfront Ventures, former VP Product Managment at Salesforce.com)
Lou Kerner (Partner at CryptoOracle.io)

In addition to hearing from ICOs who are disrupting the largest industries, you will also have the opportunity to:

Network with top investors, advisors, and founders over an entire day, with catered breakfast and lunch that culminate in a legendary cocktail party by the ocean.

Learn actionable insights and how to leverage and market an ICO for your business

The Summit content will be curated to include the latest insights, trends, and forecasts which will empower you to stay ahead of the market by learning from experts.

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Today I want to give you a few tips and tricks that I’ve learned from the pros, so you can figure out how to make money off of trading cryptocurrencies.

I wanna start out with talking about cryptocurrency ICO’s. ICO stands for initial coin offerings, which is when a new cryptocurrency is released and a certain amount of the coin can be purchased. A lot of people can do well investing in an altcoin at the ICO, but you really have to do your research because there’s a lot of people out there with scam coins. There are also a lot of people that spend a lot of time on their computers researching the technologies and the teams behind different cryptocurrencies who put out their findings on forums and blogs so you can make good investments.

Another thing you need to think about is how you are going to store your wallet. Your wallet is like your safe code to accessing your cryptocurrencies. I would recommend storing your password in at least 2 locations. Having a hard copy in a safe deposit box is a great way to make sure your code is totally secure.

Right now is a great time to make money online, but you need to be careful in not putting all of your money into one thing. I mean, I never recommend that people put all of their money into one investment. You should be able to lose one investment completely and still feel financially secure. The only thing you should ever invest everything you have into is yourself.

Like I said, crypto is a great way to make money, and even though it would have been better if you started investing 5 years, there will never be a better time than right now. Before you start throwing your money into cryptocurrencies, take the time to learn from other successful traders so you can learn from their mistakes and win off of their successes.

Cryptocurrencies could be the biggest thing in the next couple decades, and there is still a lot of hesitation about it.

What do you think about cryptocurrencies? Have you invested any time or money into Bitcoin and other altcoins?

Remember, education is the most important key to success, so take the time to learn about crypto trading and blockchain.

Stay Strong,
Tai

P.S. I wanted to take a quick second to congratulate all of you who took advantage of my special scholarship offer over the last few days. I look forward to hearing your success stories. You’ve taken action and if you keep up the work you’ll see great improvements in your life!

Unfortunately, if you weren’t able to get in, the offer expired now. I’ll be doing some other bad ass stuff soon though, keep an eye on your email!

If you’re going to be in the LA area Friday April 20th, don’t forget to get your discounted ticket to the Start Engine ICO 2.0 Spring Summit in Santa Monica. Come hear me and some of the biggest names speak about all the latest cryptocurrency insights, trends and forecasts. Is bitcoin going to recover? Come hear what the big names have to say.