Many of us spend almost all of our income on that by the time we’re 30, we have closetfuls of bags and clothes but nothing in the bank. You’re still paying off the car and renting the apartment you live in with the slow realization that the retirement you’ve dreamed off is drifting farther away.
With less than 5 digits in the bank every month, most people are clueless on whether to just save or invest. Saving is a safe, foolproof method but the interests you get from it is very low. Investing on the other hand can multiply your investments up to tenfolds or more depending on what you choose to invest in. Of course, with higher returns there are also higher risks. You could invest in a small online business, stocks, bonds or even property.
The question is, how do you know if you’re ready to invest?
It’ll be a little difficult to invest if you’re still paying off your student loans, credit card debts and you can barely pay off the bills monthly without an emergency fund. Before you consider investing, you need to identify the interest rates on your current debts, your risk tolerance and your attitude towards money.
Before you start investing there are two things you need to do. The first is to pay off all your credit card debts and car loans. If you’ve been avoiding them for the longest time, it’s time to face your dollar demons. Sit down with a pen and notebook and start listing down your debts and their interest rates. It’s important to know what you’re paying for and how much. Make a plan on paying them off and estimate a timeline. At the same time, don’t accumulate more debt. Resist getting a new wardrobe or kitchen makeover when you can live with the one you already have.
Secondly, have an emergency fund. Why do you need one? For starters, there’s only so much that insurance can cover and an emergency fund is important to help you keep going whenever you find yourself in between jobs. Before you start investing, put aside an emergency fund with 6 months worth of savings and continue to add to it even after you start investing.
Yes, we know there may be money in your EPF but you can’t touch that unless you’re getting your first home or retiring!
If you’re young, you can afford to be riskier in your investments and try your hand in the stock market or a business. However as you grow older, you should switch to more stable investments such as bonds and secure growing mutual funds because you can’t afford to risk losing your money what with a family of your own and the need for retirement funds. Don’t put all your eggs into one basket and divide out your investments wisely.
Consult a financial expert before investing into bonds, equity funds or properties. Sow the seeds of investment as early as you can in life and you’ll be reaping its rewards sooner than you think. Financial freedom can be achieved by anyone, including you!
