The investment process can be exciting but daunting. With so much to consider ahead of time, it can be impossible to know where to begin. You must ensure you are taking the appropriate steps to invest in assets that will have a positive impact on your life and your finances going forward. Continue reading to familiarise yourself with a number of key factors to consider before you embark on your own personal investment journey.
Perform a personal financial audit
A financial audit is the process of examining your finances to ensure they are being spent accurately and wisely. It may be a painstakingly exhausting and time-consuming process, but it can provide you with a well-rounded picture of the state of your finances and identify where and how you can make changes as necessary. There are a number of different ways to do this, but most methods require you to list your various sources of income. This includes your annual salary, freelance fees, existing investments, interest from savings, grants, pensions, and benefits. You must also include any additional financial support from family members or friends. You must then include when and how often you receive each stream of income. The next step involves listing your regular outgoings including any direct debits, standing orders, subscriptions, bills, and invoices. This is a great opportunity to assess whether or not you may be paying for goods or services you no longer need. Finally, you must divide your total expenditure into essential and non-essential categories and come up with several ways to cut costs. This can include switching your gas or electricity supplier or opting for a cheaper monthly mobile phone contract.
Pay off any outstanding debts
Before you begin investing, your finances must be in the best possible shape they can be. One of the best ways to do this is to pay off any outstanding or long-standing bets. The key aim of investments is to earn money. If you are preoccupied with credit card or student loan debt, you are unlikely to ever make a substantial return on investment. Borrowing to invest or investing to borrow almost always ends in financial ruin. Don’t be tempted by either. There are several benefits associated with each option but if you are torn between paying off high-interest debt or investing the extra cash, repaying your debts can help you take control of your finances and enhance that all-important credit score. This is a smart move that can safeguard your funds for decades to come. If you are new to the world of investing, you may benefit from a lazy portfolio such as a Permanent Portfolio. It is a collection of investments that takes little to no effort to maintain.
Establish a separate savings fund
Your emergency savings fund and your investment fund should always remain separate. It takes a substantial amount of time to generate income from your investments with most assets providing a minimum of a 5-year turnaround. You should never enter the world of investing with the aim of making a quick buck. It almost always never pans out this way. A separate savings fund can secure your investments and ensure you are covered in the event of an unexpected cost. This may include a leaky roof, boiler breakdown or a cross-country flight to visit an ill family member or close friend. Easily accessible savings are a key requisite for embarking on an investment journey. By keeping each pool of money separate, you can relax knowing you have taken the appropriate steps to set aside cash for each purpose. According to a recent survey, 1 in 10, or 9%, of all UK adults have no savings. In order to ensure you are covered in the event of a market crash or investment decline, a rainy-day fund is no longer a luxury in the investment world but a necessity.
Seek as much advice as possible
When it comes to investing for the first time, it can be difficult to know where to begin. Advice from a professional or experienced investor can be the difference between you tanking and thriving as you enter the investment world. Everyone has to start somewhere. By listening to the advice of someone who has been in your position at one point or another, you can ensure you are heading down the right path towards expanding upon your investment opportunities.
For a first-time investor, the investment world can be a minefield. There are a number of key steps you must take before you even contemplate parting with your savings. By performing personal financial audit, paying off any outstanding debts, establishing a separate savings fund, and seeking as much advice as possible, you can relax knowing you have taken the appropriate steps to investing as safely and as risk free as possible.
