When should you start planning to invest? When is the right time to invest? How do you know you are ready to start investing?
These are questions you may ask yourself before making a commitment. Deciding when to invest depends on market conditions as well as your financial situation.
Here are a few things to check before you start investing:
- Feel comfortable with your finances
Investing means you should be prepared for your money to be tied up for a period of time. If you have limited savings or do not have enough money to cover essential expenses, it may not be the best time for you to start investing.
- Understand that risk exists in all investments
Investing requires balancing rewards and risk. Whether you are investing hundreds or thousands of dollars, a smart investor understands that to gain potential rewards to investing, they must be prepared for potential risks. You are responsible for deciding how much risk you want to take and therefore for mitigating against such investment risk.
- Understand your investment options
Smart investing is a skill that can be learned. It is important to conduct research if you do not understand how a financial service or product works before making a commitment.
- Have a strong emergency fund
An emergency fund is a stash of money put aside to cover unexpected financial surprises such as job loss, medical emergencies, car troubles, or natural disasters. Aside from financial stability, pros of having an adequate emergency fund includes helping keep your stress level down, keeps you from spending on a whim and keeps you from making bad financial decisions. Here are some tips to help you get started on an emergency fund:
- Look at what you spend – aim to have your fund cover three to six months’ worth of living expenses
- Decide if you need to save more
- Something is better than nothing - the important thing is that you've started saving something. Smaller amounts of money on a regular basis can go a long way
See related article ‘What’s the right emergency fund amount’
- Have long-term financial goals
Before you start investing, you need to know what you’re investing for. Setting goals gives you direction. Investing based on your future goals and financial needs is an important consideration for any investor. A smart investor does not invest only for the short term. You must understand that investing is part of your financial planning for the future.
See related article ‘Five Signs You Are Ready to Invest’
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