Before you start investing

Starting your investing journey can be both a nerve-wracking and exciting experience.

But once you begin, you will probably find it’s easier than you first thought, and it’s actually a lot of fun too!

However, before you make that first investment, there are four things we recommend you do.

Number 1: Go through your budget!

Go through your bank statements from the last 6-12 months to get a sense of what you have coming in, and what are your expenses.

This is not an exercise to make you feel bad about your spending, but rather to make sure you have an accurate overview of your finances.

Once you have done this, create a budget and make sure to be realistic.

We like the 50/30/20 rule.

That means 50% of your take-home pay should go towards must have expenses like your rent and transport; 30% for fun, because you have to have fun; and 20% goes towards the future you – this includes insurance, investing and saving.

Number 2: Pay off any high interest debt you have before you do anything else!

We’re talking about credit cards or double-digit interest rate loans here. It is unlikely that you will be able to get a double digit return in the stock market, and therefore you would actually do better to pay off your loan first.

Number 3: Save money in case of emergencies!

You need to make sure you have enough money saved in case of emergencies.

The exact amount you need will vary from person to person, and will among other things depend on your job security.

However, we normally recommend having about 2-6 months’ worth of expenses held in a savings account, so you’ve got it when you need it.

Number 4: Think about your retirement savings!

Make sure you are on track with your pension fund or retirement savings. At least 10% of you’re your income should be going toward the future you.

You should also make sure that all of your retirement savings are deposited in one pension fund, so that you are not paying administration costs to several different companies.

This is especially relevant if you are young and have already switched employer a few times.

Now, if you can’t make the math happen right away, that’s okay. Starting slow with investing is fine. It’s all about making it a habit by setting aside a certain amount to be invested each month.

Try investing 1% if that’s all you can, or 5% now and then increase it in the future when you get a raise.