How to Start Investing from Scratch

Investing is a fundamental skill that EVERYONE should partake in one form or another. Unfortunately, many people never get started simply because they are afraid or they simplify don’t know where to get started.

If you are afraid, the first step you need to take is to get over this fear so you can build wealth for yourself and your family. Some ideas that could help you get over your fear of investing include:

Research: Continue reading tips and articles such as this one. Also, you may want to check online forums (such as the EM Think Tank) where investors such as yourself get together to share ideas, ad terms are explained in a down-to-earth manner.

Experiment: It is never too late or too early to begin investing, but you must have time to learn. Consider joining an Investment Club or start a “mock portfolio” to see what it’s like (and what it feels like) to invest. There are hundreds of online locations where you can learn and participate in these two things.

Start Slow: Don’t invest your life-savings. Make sure you have savings for a rainy day first, and then slowly start to invest money little by little. This way you will never worry about the risk of going broke.

Think Long Term: Think of holding investments for at least 5 years. Remember, you have somewhere between 30-60 years to build and live on your fortune, so you must begin to build your wealth now so you can do what you want and live comfortably when you’re done working. This is almost impossible to do with a simple savings account; you must invest your money to not only build retirement wealth, but to ensure your fortune keeps up with inflation.

Once you get over your fears, how does one actually get started and become an investor? First, I must let you know up front, getting started with investing isn’t easy. After all, you still have to pay your bills, entertain yourself and your family, and spend your money on numerous other things you want to buy. So in reality, there isn’t a whole lot left over for investing, is there?

Well, the first thing you must do before you become an investor is to make the most of the money and income you already have, whether it’s a lot or a little. This is the only way you can get ahead.

Being preoccupied with what you wish you had, or what your co-worker has is a waste. You must get a grip on your finances now and figure out where your money is going on a monthly basis. This is the second step to become an investor, write down and religiously follow a monthly budget.

If you continually say Where did all my money go, then you need to get a grip write away by writing down and categorizing all you monthly expenditures. Some categorizes you may user are:

– Household Expenses (rent, utilities, phone, maintenance, groceries ect.)

– Car (gas, maintenance, ect.)

– Insurance (car, homeowner, health ect.)

– Debt (credit card, car note, mortgage)

– Clothes

– Entertainment (eating out, electronics, vacation, ect.)

– Children (child care, clothes, tuition, ect.)

– Emergency Fund (should have at least 1 year of expenses set aside)

These are just a few, but the idea is to create broad categories so it isn’t too time consuming for you to log all of your expenditures. I would suggest no more than ten.

Next you must analyze your budget. Once you have tracked your expenditures for several months, and learned to stay under a set budget it is time to decide what you can do without. Look at where you money has gone over the months, then decide what you could do without or what was excessive.

Here is where you will find your money to invest. It may be only fifty to one hundred dollars at first, but the amount doesn’t matter, what matters is that you have uncovered the hidden value of your earning potential.

Now you must redo your monthly budget to include investments. Do this by shifting money out of the categories you found overweight into your new investment category. Then you will need to put that money into its own separate savings account on a monthly basis, either by automatic transfer (can be set up by any bank) or by manually doing this. Continue to sock away money into this account until it has built to at least $1000.00

If you can make it this far, (many try, few survive) you are now ready to go to the next level. If you have not contacted a financial advisor by this point, now is the ideal time to open up the yellow pages and start looking to schedule an appointment with a reputable Certified Financial Advisor or Financial Planner (CFA, CFP).

It is likely that a CFA or CFP will be able to guide you from this point forward, but some pitfalls to look out for before you plunge into your first mutual fund or stock are:

1. Always keep at least 10% of your total investment dollars in cash (reserve money for investments that may need immediate cash)

2. Always dollar cost average your money

3. Look out for loaded mutual funds. Often a CFA or CFP will get a substantial commission off of selling you these types of funds. This may be a bad investment decision but the agent wants to make his commission off of you.

4. Always ask how much it will cost to buy and sell stocks and mutual funds. For example, a discount broker should cost around $10.99 to buy and sell stocks and $18.99 to buy and sell mutual funds. Some full-service brokers can charge as much as $100.00 or more per trade. Don’t let these expenses eat up all your returns

5. Ask about the “expense ratio,” the lower the better.

This is what it takes to start from scratch and become an avid investor. Here is a recap of the steps you will have to take.

1. Get over your fear (research, and learn more about investing)
2. Set up a monthly budget
3. Categorize and record all expenditures
4. Analyze budget and eliminate all excessive and unneeded expenses
5. Create a new budget with an “investment category” and put the money that was eliminated from other categories into this one.
6. Open a new savings account to deposit investment money
7. Start by saving at least $1000.00 for investments
8. Contact a CFA or CFP
9. Be aware of pitfalls and gimmicks that can lower your returns