Investing

6 Things To Do Before You Start Investing

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Do you want to build an investment? There are things you need to do before you start investing. But you need to know the difference between investing and business. Because it’s possible to misapply the two thinking they are the same.

In this post the focus is on investing. So, we are going to focus on those things to do before you start investing. It’s not directly related to things to do before you start a business, even though you can apply some of them and it will work.

I’m drawing this boundary for a reason. There may arise conflict when you are trying to decide which one is a business from what is investing. It’s better you know the difference, so that your mind will properly articulate these 6 things.

Business Versus Investing

To achieve financial success you need wealth creation tools. We have only two options of wealth creation vehicles. It’s either investment product or business, or you are using both.

That’s means investing and business are not the same thing, but the same tools. While a business aims to generate revenue from product and services, an investment aims to produce a return from financial instruments or markets.

But there’s a part of business that’s equally investing. Like, the money you put into starting or running a business is also an investment. In that sense you can consider your money in your business as investing.

However, when investing in business it’s not just about putting your money, it requires more than that. Rather, it brings you into ownership of the investment. That includes your time, energy, experience and efforts are all required plus your money.

Whereas in investing, all that maybe required is your money. While you work for a business, in investing your money works for you.

The 4 Types of Investments

Having clarified that, let me further hint on the 4 types of investing your money. I will just list them here, but will expand them in another post. These four main investment types, or asset classes, has risks and benefits.

However, these 4 assets classes are grouped into 2 distinct categories.

  1. Growth investments
  2. Defensive investments

The first two investment types belong to the growth investments. These are investments that are more suitable for long term investors. They also offer reliable investments, as they are able to withstand market ups and downs.

The two Growth investment types are:

  • Shares
  • Property

But the last two are categorized as defensive investments. These types of investments are more focused on generating consistent income. They are not Growth focused. And are considered as lower risk investments than growth investments.

The two defensive investment types are:

  • Cash investments
  • Fixed interest

Planning To Start Investing

Now that you have an insight into different investment types, it will be more clearer now to understand these 6 things to do before you start investing. However, you should consider these steps as your planning stage.

Unlike starting a business, which you can equally do even without capital, but you cannot start investing without capital. You need money to invest. And if you don’t already have it, then you need to plan for it.

Planning to start investing is as important as the investment. Because if you are going to risk your money, you should think properly before doing so. And that’s why these 6 things to do before you start investing is key to your investment success.

{1} Build An Emergency Fund

If you are going to build an emergency fund it means you are raising your investment capital from your Cashflow. There are several ways you can start building your emergency fund. But the best part is your commitment to the cause.

Building an emergency fund equally means denying yourself and family some needed cash to purchase those needed groceries or items that can improve the quality of your life. So, it’s a sacrifice that would need your commitment till the end.

You can choose what you need to save from. However, if you look properly into your cashflow you might find areas that won’t affect your normal life. That would make it a lot easier to save.

Tips to build an emergency fund

NerdWallet gave a great idea on how you can start building your emergency fund. The site listed some tips to help you do just that. You can read the full blog on NerdWallet here.

  1. Set a monthly savings goal.
  2. Keep the change.
  3. Tidy up your checking account
  4. If there’s no money left, cut expenses
  5. Get supplemental income
  6. Save your tax refund.
  7. Assess and adjust contributions.

{2} Pay Down Debt

Having a debt profile could affect your ability to start investing. So, it’s better to get rid of your debt to give you room to plan your investment. That also includes not getting into further debts of any kind.

You may need to cut your credit cards and any other facility that’s adding to your debt profile. Once you stop accumulating debt, the next thing is to start paying off already existing debts.

Tips to Pay Down Debt:

  1. Pay as much as you can afford each month
  2. Make cuts to your spending
  3. Double up on payments
  4. Use windfalls to pay down balances
  5. Tackle debts with the highest interest rates first

{3} Know Your Cash Flow

Cashflow is key to how you can ever start investing. To be able to start investing, you will need to know how much money you receive and how much is spent on a given period. Analyzing your Cashflow will give you an idea of your investment potential.

How you can start investing now depends on your Cashflow. If the money you have left after a given period is enough to make an investment, then you have a healthy Cashflow. Otherwise, you may need to learn how best to manage your Cashflow to minimize expenses and increase your closing balance.

Tips to Maintain a Healthy Cash Flow:

  1. Reevaluate and fine-tune the pricing of your products
  2. Replace old equipment and inventory
  3. Re-negotiate long-term contracts
  4. Improve your marketing
  5. Monitor your cash flow regularly
  6. Cut costs.
  7. Lease equipment instead of buying it.
  8. Closely track and collect overdue accounts
  9. Don’t extend credit without taking the proper precautions
  10. Keep your inventory lean

{4} Track Your Net-worth

Know your net worth before you start investing. You need to properly evaluate your personal assets. Your assets is what you own. That will include your house, household items, car, wristwatches, phones, laptops, iPads, anything of exchangeable value. If that thing can be exchanged for money, it qualifies as an asset.

Also, you need to consider things that re your liabilities as well. They are things you owe like your debt profile. You should also value them to come up with its financial value. If that thing takes money from you on a regulars basis, it’s called a liability.

Tips on personal net worth statement:

  1. List your assets, estimate the value of each, and add up the total.
  2. List your liabilities and add up the outstanding balances.
  3. To get your net worth you need to subtract your liabilities from your assets to determine your personal net worth.

{5} Define Goals And Priorities

You have to define what your investment goals should be and those you consider priorities as well. You should not start investing without a proper goal definition. What you want to achieve must be clear to you, that’s equally what helps you determine what type of investment or investments would help you achieve your goals faster or better.

And if you have more than one investment goal, it’s proper to try and prioritize them.

Tips for Setting Goals and Priorities:

  1. Choose the right goals carefully
  2. Write down the goals
  3. Put down a plan.
  4. Stick to your plan
  5. Regularly reassess your goals and priorities them.

{6} Understand The Basics

Don’t start investing unless you have understood the basics. As a beginner, this should guide how you invest. Until something is clear to you don’t invest your money. No matter how good an Investment looks like, understand the basics first.

If you must invest when it’s not very clear to you, do it with funds you can afford to lose. Never gamble with your main investment capital.

Tips to learning how to invest:

  1. Decide how and what you want to invest in.
  2. Open an investment account
  3. Set a budget for your investment
  4. And Start investing.

Conclusion

Every entrepreneur must think of investments beyond their business. Plan your investment from day one of starting your business. It’s okay to work for your money, but it’s better when your money is working for you.

The idea of multiple streams of income should not be to start many businesses but to have many investment portfolios. That’s the best way to duplicate yourself and still be yourself and enjoy your life.

If you must start a business it’s okay, but I recommend that you start investing. You can start multiple investment in one year but starting multiple businesses may take you a lifetime to achieve.

Having multiple businesses maybe a dream come true but having multiple investment is the fastest way to grow wealth.

Chinedu David
Chinedu David is a business consultant, trainer, marketer and strategist. I founded Mystore, an eCommerce business in 2013. I have a vast experience in eCommerce, digital marketing and startup consulting. Having worked with SuccessDigest newspaper for over 10 years, as a telecom editor. You can contact me by phone, email or social media. You can also reach me via email: nedu@myblog.com.ng or Call/Text/WhatsApp: 07087770518
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