Everybody wishes to have easy steps to invest with fewer worries. Investing seems so complicated. 67% of millennials don’t feel confident, therefore they don’t invest. Moreover, they are worried and overwhelmed so they prefer to choose low-risk investments.
Reading time: 5 minutes
Financial skills level: Basic
Table of Contents
Why are we so scared to invest?
This is how I was too: terrified to lose the money that is taking me so much time and effort to earn, not trusting finance and the stock market (as I went through the 2008 crisis), convincing myself that I don’t understand anything of how this money game works. You probably feel the same (67% of us millennials have this feeling!)
So, how do we deal with this?
First of all, you need to analyze every “big fear/problem” so that I could divide it into smaller pieces and I could face those small parts in a less stressful, more effective way.
Periodical Crisis
This post will be long and it is intended to be a basic level. So I will not explain in depth all the macroeconomic elements that “usually” can lead to a recession (i.e. a period when the economic crashes), like for example the unemployment rate, the national debt, the private debt, the relationships between world countries.
As a matter of fact, macroeconomy (i.e. the economy of the nations) vs the microeconomic (which is the economy of the individuals) can’t be explained in a few words. Being honest, when I read some financial newspaper, something sounds difficult also to me, even if I studied it at the university and I deal with it regularly in my job.
With that said, I just want you to be aware that Yes, crises happen and the experts say that the frequency is on average 7 to 10 years. The last big one was 2008, now we are having one in 2020, so it was 11-12 years.
And yes, you need to keep your eyes open to see the anticipation signs and you need to get ready not to be hit too hard.
Lack of understanding and confidence
The macroeconomy is mostly out of our control: the politicians decide who to run the country and how to deal with other countries with alliances or “wars”. However, I see that the system in the USA allows you to voice your concerns much more than in other countries in the world.
Nonetheless, in our daily life, there is not much that we can do. I usually suggest staying focused on what we can make a big impact.
One of the reasons why we are scared is that we don’t understand the money game and therefore we are not confident (remember, the 67% of millennials?)
But you know what? I am confident that many of us are able to learn more. The suggestion is to look for the experts that talk clear and thoughtful to make it easier for people to understand, not the ones with difficult fancy words. And find somebody that you trust to guide you and teach you a little more about personal finance with love.
I am actually trying to do it with this blog.
Scarcity mindset
Many tend to think that all the resources are limited and that there are not enough for everybody. Therefore they think that if somebody gets something in a bigger quantity, somebody else will not get it.
In other words, he/she is rich and I can’t be rich because there is no wealth left for me.
The scarcity mindset, unfortunately, is everywhere, but I tell you what… What if it is a lie?
Don’t get me wrong: there are some limited resources (like for example some natural material) and we should not waste them. But we have the ability to create wealth and that’s what we need to keep in mind.
There will be time to talk more about it. In the meantime, just try to shift your mindset, and don’t be afraid: there is a piece of wealth for you too!
Easy steps to invest # 1
Calculate your initial budget
How much money have you saved so far? How fast can you save money?
Money is the fuel of your investments: as we said, we want to make sure that we don’t risk losing it, but we also want to make sure to understand that without investing we are losing earning opportunities.
So how do you calculate your budget?
There is no only one way. Many blog resources are out there: The Budget Mom talks about the budget by paycheck and uses cash envelopes. I am not on the techy side and I prefer not to invest too much time but I agree with her method in one important thing: the first period you need to analyze every single penny, the first period is about paper bills, paper, and pen.
Write down every expense and see everything that is left.
Easy steps to invest # 2
Give different purposes to your money
You know, this is kind of a mantra for me…
What this means is that you need to allocate your money with specific goals. How do you do this? That’s simple… You sit in front of your computer, and you divide the total amount available into small sums. Each small will be destined for different purposes. There will a bucket for low-risk investments, high-risk investments, vacation/entertainment funds, retirement funds, and so on.
Don’t worry, there is not a right or wrong mix. In the beginning, just divide your money in a way you feel more comfortable with.
There is only 1 important thing you have to do when you are dividing your money. You need to create a liquidity fund and try to put there at least 3 months’ worth of your expenses.
Some people call it emergency fund but I like to see it from a different point of view. By calling it a liquidity fund, you take away the negative
I repeat: put there at least 3 months. Then little by little you will grow it to 6 months or more.
How does your allocation looks like?
Let’s start with some reflection. If you allocate money to real estate, it means that you feel confident and comfortable with that type of investment. It means that you may be like it, you like the idea of being a real estate investor.
Good! So your next step should be to start learning anything that you can in real estate.
Unless you are opening a retirement plan (with small monthly amounts), you may not be able to invest immidiately. This gives you time to study…
Easy steps to invest # 3
Study the different investment options
You still don’t know much as this is new to you. So be mindful.
You are using your money and you don’t want to burn yourself.
You need to learn what you are doing. Invest time in studying every field in which you have decided to put your money. Start by spending more time on the investments where you allocated the majority of your budget.
I compiled a quick glossary of investment products and terms that you must know to start…
Easy steps to invest # 4
Start with little and then grow
If you still like it, then you proceed with an investment by seeking help from professionals at first, till you don’t get knowledgeable enough to do it yourself.
It might also happen that after studying a little, you understand that it is too much work, that you don’t like it so much as you thought, or maybe that you like it a lot but the time is not right.
This is still good as you can go back in front of your computer, have a look at your money again and decide that you want to change the mix of your investments.
And you go on like that, till you haven’t learned anything that you need to feel confident enough to put your money for real and till you reach the balanced portfolio that will get you to your long term goals.
From that moment on, every time you will have some savings, you will allocate them to the portfolio and you will decide the best allocation every single time.
What I mean with this is that if your portfolio is 10% emergency fund, 30% CD, 50% real estate, 10% stocks, you don’t need to keep the same proportions. You will analyze the state of each market and allocate the money where it make more sense in that specific historical time.
Easy steps to invest # 5
Keep this in mind
While improving your knowledge and working on your mindset, don’t leave the money in your bank account!
Move all your budget to a high-yield account so that it can earn at least a small interest. And maybe open a few 1-year CD if the interest rate is good.
Remember to keep safe your liquidity fund: it is fundamental when you start investing.
Firstly because you will have immediate availability to put in the market in case of a very good opportunity.
Secondly, an extra amount gives the peace of mind you can survive some months if returns don’t arrive soon. Without an “emergency fund”, you would be forced to withdraw some invested money, and you risk losing the gain.
No responses yet