I don’t think that everyone should simply jump in with both feet. Whilst investing can boast stable long-term returns, there is lower lying fruit to pick like better financial habits that can help build your wealth.

It is amazing how many start their investing journey but don’t understand the tenets of wealth creation. An investment portfolio with above average returns will do very little when other financial areas are undisciplined.

I found that on my own personal journey I was able to make more money (and keep more money) by starting with the right financial mindset. I have little options but to invest as all the other areas are tended to. When people ask me where to begin investing my suggestion is usually below. It is often a far better place to start…and less risky in the process.

Here are my top tips to cross check before you start investing. Rememeber these are just primers to consider prior to diving into the investment universe.

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If you can’t afford to lose don’t start investing.

That is going to drive all other outcomes and makes practically all the below irrelevant. If you can not afford to lose the money and it would affect you emotionally or threaten your quality of life and those around you…Don’t Invest. The words “I can’t afford to risk this money” is the greatest test on where to begin. Investing is best started with capital you don’t need right now.

Record Keeping for accountability.

Systems are essential to accountability. Investing requires processes, to cultivate this habit start with record keeping around your own financial wellbeing. Tracking your net worth and your cashflow is a great place to start. It helps to know what you’re aiming at, when something is tracked, we tend to stay the course. When I started tracking everything amazing things happened, I was aware, I took it serious like a business. It is also easier to make unemotional decisions when you know your position. Investing is a methodical process and those that treat it like one tend to do well, starting with a good system.

Know where your money goes before investing.

Budget is another key area, knowing what money is coming in and out will help plan for savings and investing goals. You must know what is happening on a weekly or monthly basis. This becomes easier with the record keeping idea above, monitoring cashflow and where it is going. Set out a budget and stick to it. Everything from food, utilities, entertainment…all the things you fork out for. If you don’t know where your money currently goes investing may not be a smart place to start.

Cost cutting to free up income.

Reel in your expenditure. I am not here to tell you what to do with your money, spend it however you like, however understanding opportunity cost is a core discipline of investing. In a day and age where subscriptions, consumption and comfort thrive we tend to have more than we need. Look at ways to reduce your expenditure and cut excess spending. A dollar spent on something that you feel like at the time means less compounded in the future. Cut unnecessary spending, this frees up a lot of money. Do it annually, always looking for ways to trim, consolidate bills, shop around, do not let costs creep in or up.

Saving your money is still a great habit.

Save money! Yes, it is true that savings over decades won’t outpace inflation or a strong investment portfolio, BUT saving is still a great strategy. I am a saver; I save even now always and forever. Cash in the bank is a part of my own independence philosophy. Whilst inflation is a scary word it should not scare or deter us from holding cash. You will see these graphs about cash being eroded by inflation but don’t let that create fear. If it came down to not investing having a savings plan is still a great wealth builder. I have always held cash; it has not swayed my decision. I still have similar purchasing power. In fact, I brought a property next to one I owned from 2009 and paid less for it now 14 years later!

Emergency funds play an important role.

Cash and an emergency fund can be treated similarly all though the later is a no-go zone locked away for a rainy day. Keeping 6 – 12 months aside is a very good idea before starting to invest. Risk comes with the investing territory so having a buffer to carry on life is a wise move. If you get laid off or have a few down months (even years) all though painful it is not the end. I have cash reserves, but they can be deployed if opportunity arises, the emergency fund is locked away usually in a low interest vehicle to at least earn something. Investing is about the future; an Emergency Fund is also a hedge against the unknown future. Stuff happens, in my own experiences I’ve leaned on my Emergency fund several times. It is better to have one and not need it than to need it and not have one.  

Debt is the worst destroyer of wealth.

Debt is the killer. Car loans, education loans, credit cards and even your house should be paid off. Most debt is dead money that can be used to produce better returns elsewhere. Paying of high interest accruing accounts and freeing up those reoccurring payments is a great decision. I am bias because I am anti debt and avoid it like the plague, I want to own all I have as that is a part of my wealth and investing strategy. (Before I am criticised, I have danced with the banks with levels of debt that would make most people have a heart attack, when I was in the property sector). Reducing your liabilities is still a wealth building tool that should be considered prior to putting capital into investments.

Max out retirement funds.

If you have employer contribution funds (pending where you are in the world) then maximise those. They are great vehicles to help you work towards your retirement goals. They are also tax effective, and it is a good way to invest and save at the same time.  

Understanding the basics before investing.

This will be covered in the next topic and is the foundation of what we discuss in this blog. It is important to be mentioned here as well just as a prompt. If you are looking to invest start reading, getting educated and understand the playing field. This will also help drive your own investment strategy if you at least have an idea about what is available and the purpose of it. Whilst I believe failing is a great educator to learn from mistakes, investing won’t give you too many chances to start over if you get it wrong.

In summary…

After all of this if you feel you have a great handle on your personal financial affairs and are ready to invest then let’s explore further. Of course you can skip these prompts, this is not a MUST do, it simply is a guide of what may be a better low risk-reward alternative than investing.