The Basic Investment Guide by Paul Jorgensen - HTML preview

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Section 2 :
So you want to start investing? Not so fast!

Ok, so you want to hurry up and start investing but you probably don’t know where to begin. Well, there are a few things you should do before you start investing. Be patient, we’ll get to the fun stuff soon!

Before you invest, what you need is stability. If you currently have no money saved up, then you don’t want to rush off with your next paycheck and start investing it all right away. What would happen if your car broke down, or you got injured and your insurance didn’t cover everything, or you were laid off from your job? You need an emergency fund, some accessible savings, for those kinds of situations. For a single person no longer living at home with Mom and Dad, 3 months salary is probably the minimum, and for a person with dependents, 6 months salary. I keep 6 months salary in my emergency fund even though I’m single, because that provides me with additional peace of mind. Your emergency funds should be liquid, meaning easily accessible. Keeping them in a savings account or checking account is reasonable. You do not want your emergency funds to be locked away in an investment with a minimum time period, and you do not want your emergency funds to be in investments that involve risk. Just save it somewhere safe where you can reach it. And don’t reach for it unless you need it. A trip to Mexico isn’t an emergency.

You also want to make sure that you have adequate insurance to protect yourself from catastrophic loss should you, God forbid, fall ill or have a serious accident. You do not want to put all of your hard earned money into investments only to have it all taken away because you have medical bills or liability compensation to pay. I know the discomfort you feel in spending your cash on something you may never even need, but remember that insurance provides you with peace of mind. Peace of mind is one of the main components of your quality of life. Less to fear = lower stress = more happiness.

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Next, you want to pay off all your bad debts before you start investing. If you have a mortgage that’s fine, because that’s something you’ve planned into your budget for the long term. But paying off bills and credit card should be top priority. Maybe you can invest your money and make 11% interest this year. That sounds great, until you remember that your credit card’s interest rate is probably much higher than that, so you would be losing money off of the difference. So instead of investing that money, use it to pay off some of your credit card debt first. If you’re like I was, you’re probably dying to start investing right away, but getting rid of these pesky debts is absolutely critical. Be patient, make a repayment plan and stick to it. During the months (or even years) it takes you to kill these debts, you can be a virtual investor and learn as much as you can about the markets and arm yourself with knowledge, so that as soon as your bad debts are gone, you’ll know exactly where to begin.

Now that you have insurance and an emergency fund to protect you, and you have eliminated your bad debts, you can now decide how much you can afford to invest each month. Plan your budget carefully and after each paycheck, immediately set aside the money you have committed yourself to investing. This is called paying yourself first. Do not pay yourself what is left at the end of the month. Pay yourself first, because that forces you to stick to your budget and keeps you from making impulsive purchases that are not in your best interest. Your budget should allow you to enjoy your life, but stick to your budget and don’t compromise your investments, which are a obviously a priority (I know they’re a priority to you, because you’re reading this!!).

Now you’re secure and all ready to start investing. Soon we’ll be discussing the basics so you know where to begin!