When to Start Investing

The majority of individuals find it difficult to time their initial investing phase. There are seven steps that Dave Ramsey, a famous American businessman, who specialised in personal finance, suggested to guide individuals accordingly. I would like to go through the said steps as I believe that they are now more relevant than ever when considering the current market conditions.

The first step that he suggested is to save apart at least a thousand euros, rather than allocating such amount to investments immediately. This step is really important. We shouldn’t start investing if we don’t have enough money to pay for any possible unforeseen events.

According to Ramsey the reason why having an emergency fund of a thousand euros is important is because it lessens the possibility of any particular individual to take a loan. In actual fact, not having partial savings will undoubtedly work against the principal of investing as it would make an individual pay more for each expense accumulated.

The second step that he recommends is to pay off all the debt except for any held real estate. There is a specific way of doing this. Start by paying your smaller debts first and later the larger once. Don’t worry about the interest rates. You should only worry about the interest rate if your debts have a really similar payoff. The idea behind such rationale is that the difference between the interest rates usually will not be greater than the entire debt itself. Therefore, you should pay all your debt before investing.

The third step is about building a full 3 to 6 months of expenses in savings. This is a way of following step number one, but the thought after this step is that you are saving for possible rainy days, such as for instance being fired from your current job.

The fourth step kick-offs into the investment world as it suggests that individuals should invest fifteen percent of their annual income into a retirement scheme. There are many ways of doing this, but primarily a retirement scheme allocation should be based on the individual’s age. For instance, a 25-year old individual should have a high allocation to equities, whereas the said allocation will decrease accordingly as the individual approached retirement.

The fifth step is to save for your children’s college fees. There is not a perfect percentage about this step because every case is different. It all depends about the number of children, the school’s location and at which university you would like to enrol your children too.

The sixth step is more about the loans an individual holds on real estate. Here, it is crucial that an individual will seriously consider the momentum in interest rates. At times, the interest payments you are paying might be higher than the returns you are getting from your investments. And yes, this would be a case where in actual fact you are losing money rather than saving.

The seven and last step, in my view, is the most exciting. It is the decision process where one would start building his investment portfolio through investments in different financial instruments, such as stocks and bonds. As I had also stated in my previous articles, it is imperative to have a professional financial adviser or manager to help you achieve your objective and expectations through a variety of investments. Over the past years, financial markets were conditioned by political turmoil in addition to several monetary prepositions, therefore it is now more crucial than ever to be guided accordingly by serious professionals. Guidance is important if you want to achieve your retirement goals through the financial world.