The financial cushion was, once upon a time, something that was taken for granted. People automatically put 10-15% of their paychecks away in a savings account “for a rainy day.” Today, sacrificing 10-15% of your take home pay to a savings account feels like an incredible burden. For most of us, building up that cushion involves side gigs, second jobs, etc. Unfortunately even those aren’t enough to build up a cushion that will reliably keep us afloat during an emergency. If you really want to create a stable and reliable financial cushion both for now and to ensure your financial health in the future, you need to learn to invest.
Wait, what? Investing feels like gambling and gambling is not something someone living paycheck to paycheck should do, right? On the contrary!
For one thing, nobody is saying that you have to invest a ton of money right now. It is possible and even advisable to start small and work your way up to larger and more diverse portfolio. In fact, the first step to investing isn’t tossing your money into the market. The first step to investing is learning what investing is and how it works.
There are a lot of ways to gather this knowledge. For some of you reading a book is enough. For the rest, you’ll be better off taking a class and/or working with a mentor. You can find these classes and mentors at local schools, community centers and online through portals like Simpler Trading. Trust us when we tell you: it is better to learn how the market works and to make sure you understand the vocabulary and economics terms used to communicate in the investment world before you invest your first dollar. Educating yourself first means you are less likely to be taken advantage of later.
After you’ve gotten your basic investing education, you can start figuring out where your money should go.
Diversity isn’t just a buzz word for the social world. It is also an important concept for the financial world. If you want your investment portfolio to succeed you will have to build a portfolio that is diverse. The best way to do that is to start with a small investment (no more than you can actually afford to lose) and then using the profit from that investment to make another, and so on. This way you’re paying with profits, not dipping into your paycheck.
Where to Start
There are a lot of opinions out there about the best starting place for a new investor. Many insist that the best place to begin investing is with your own savings account. If your savings account is at zero, this is good advice. Build up that account first then look for other places to put your money.
If your savings account has a good balance though, one of the best places you can begin investing is with T-bills. T-bills are sort of like gift cards but they grow in value over time. When the T-bill matures (most T-bills mature in a year or so), you can either let it keep growing or withdraw it’s worth for reinvestment purposes. There are a few different types of bonds out there. For the very cautious, T-bills are a good place to start.
The next step is to invest in bonds. Treasury Bonds (and other types of bonds) are basically T-bills, but they usually require a larger deposit and they take more time to mature. Investing in government-based bonds is a good idea because the growth is based on national economic growth, not the stock market. You are also guaranteed to receive at least as much as you originally invested.
Graduating to the Big Leagues
Once you feel more confident about investing, you can move from treasury bonds and t-bills into stock market based investments, mutual funds, and real estate. These investments will be larger in nature and are less predictable than bonds. They also tend to offer greater returns if the portfolio fares well. It’s a good idea to work with a financial manager to build this section of your portfolio. This way you don’t have to keep track of the growth on your own (which can be a time consuming process).
The good news is that you can start your education today and have earned returns on your investments within a year. With that in mind, stop reading now and begin your education!