People often come to us with questions about investing. “Where to invest, how to make money.” But such questions should only be asked by the owners of the right financial base. And we are not talking about large capitals and not even about millions of dollars (although the question of a comfortable level for you to spend – if it’s millions, then you should invest the same millions).
We are talking about the minimum necessary to start investing, since there is such a request from our people.
So here’s that minimum:
- A financial safety cushion: This is when you have money for 3-6-9 months of living comfortably in the event of no income. Some sources say 12 months, but that’s up to you. If your attitude to risk is stable, you can be satisfied with 3 sums. It is clear to everyone that the risk of losing income does not come true for everyone and not always. As long as you have little experience to calculate the amount needed, set aside the amount with which you feel more comfortable. After conversations with our students, we clearly understand that 9 out of 10 of those who are interested in finances do not save, which is why you should start saving right now, and at least something. As they say, the beginning is half the battle. By the way, we have a very cool tool for saving and education – our finance club;
- You have the necessary insurance or insurance fund. Here, too, it’s a question of covering your finances from all sorts of risks. For example, our team uses voluntary health insurance. It includes free check-ups and doctor’s visits if you suddenly catch a cold. And all this does not take money from you, only one payment once a year. The insurance fund also includes money for equipment replacements, repairs, and other “household” expenses;
- You’ve secured a minimum comfortable retirement for yourself (although we already consider this an investment too, but we’re most often asked about stocks/bonds). A minimum comfortable pension for you is provided either by life insurance or by a private pension fund. You can find a list of insurance companies and non-state pension funds with a state license on the website of the Central Bank. There are many different possibilities now, including not the most adequate ones, so it is better to check the company you want to put your money in for a license, which is issued only by the Central Bank;
- Your portfolio is formed according to your level of risk appetite and the finances available to you. There is such a thing as an investor profile. It is at least the level of your readiness for risk. We are all different and so are our levels of risk perception. We’ll write a little more about risk in the next paragraph;
- You do not invest with borrowed funds. For some, this parameter may be a strange one (“how can you invest borrowed money?”), and for some, on the contrary, it will be a question. We answer the question of those for whom investing with borrowed money does not seem strange and risky. Remember, investing is always a risk. You can lose everything. Either you can lose part of your investment portfolio, you can lose nothing, or you can make money on your investments. Even a deposit in a reliable bank is risky. It’s just that the risk of closing a safe bank is less than the risk of losing any stock investment. There is even risk in keeping cash “in the stocking”. Money can get lost or damaged. There is even risk in spending all the money to zero – it’s that you could lose your income and have no means of livelihood.
There are risks everywhere, which is why we talk about investment preparedness, because in preparation we always cover the underlying risks so that they don’t affect you and your income. The house is always built from the foundation, which is why the current “downsides” (anything that takes money away from you every month or can take it away) are covered first, to cover the minimum future expenses. About borrowed funds – if you still haven’t changed your mind about investing them – maybe some simple math will help you. Calculate the potential gain/loss you will incur on the investment and see what price you pay for borrowed money. This should stop you from making any such investment.