“Everyone can invest” is an idea that has become popular in the last few years. However, people are still afraid to invest money, to use an unfamiliar device: they are afraid to end up with a broken trough. How to start investing and what income is needed for this?
What you need to know
Do not invest immediately somewhere any free money. Be sure to create an investment plan that will become part of your overall financial plan. Investments are always a risk, as there is a possibility that the value of the assets in which the investor invests may decline. Therefore, your financial plan should provide for the availability of reserve capital, or a financial safety cushion. It can be created in parallel with investments, but do not forget about its necessity.
Investment markets depend on the current situation in the country’s economy. If you urgently need the invested money, you can sell the accumulated assets, but not only do not earn anything, but also leave at a loss. Be prepared for the positive results and good profitability of investing for an average of 3 years.
How to start investing
The first step to investing is a complete financial analysis of your budget. The size of your income does not matter at all, what is important is the mandatory load on it. It includes your credit obligations.
The loan burden should not exceed 35 percent of the total income. If the credit obligations are higher, work on this issue first.
Also, the mandatory burden includes the total costs of housing, food (the most necessary minimum consumer basket), children’s education, keeping animals, costs of ongoing treatment and the purchase of vital medical drugs, transportation costs, mobile Internet and communication. Perhaps you will identify additional areas of necessary spending. Divide the resulting amount of mandatory expenses by your income and multiply by 100%.
Ideally, the burden on your budget, including credit obligations, should not exceed 60%. If the load indicator is higher, there are not many opportunities to build a long-term financial and investment plan. Free cash balances of less than 40% may not be enough for other variable spending (purchasing clothes, out-of-pocket expenses, gifts, etc.). There is a high probability that you will need the money that you have saved or invested, and you will put it back into the budget for current spending. The 60/40 balance is a great opportunity to start building your investment strategy.
So what amount can be invested? I recommend operating at 30% of the residual income minus the mandatory load.
Example: income of 100,000 rubles, mandatory expenses of 60,000 rubles. The remaining 40,000 rubles. Your investment potential is: 40,000 * 30% = 12,000 rubles.
Do not forget about the airbag!
To calculate its size, multiply all your mandatory expenses by at least 3. Returning to the example: the minimum size of the airbag will be 60,000*3 = 180,000 rubles.
Standard investment rules can apply not only to individuals, but also to companies. True, approaches to investment and development of a strategy depend on a specific type of activity and a more detailed study of the expense account.
Creation of investment capital
For an investor with an average level of income, three financial markets are suitable for investments: the market of securities, precious metals and the currency market. Which one is right for you depends on the time you are willing to spend analyzing the situation, your desire and knowledge. What are the basic concepts to learn:
- Do you want to invest in securities? Learn what stocks, bonds, and mutual funds are. Who are brokers? What is the difference between brokerage firms and banks? How is a brokerage account different from an individual investment account? What does the movement of the share price depend on?
- To invest in precious metals, read the necessary terms and conditions of service of non-cash metal accounts. It is also worth knowing what the price of precious metals depends on.
- Investing in the currency market requires knowledge of the economy of the country whose currency you plan to buy. In addition, it is necessary to monitor the interconnection of the Russian Federation with other countries in terms of trade.
Don’t forget to get information about taxation when investing in the securities and precious metals markets.
Why do you still need investment
Financial literacy is the ability to control your mandatory expenses. You may have encountered a situation where the employer regularly indexes wages, perhaps pays bonuses, and the financial situation of the employee still does not change. This is due to additional mandatory expenses that people can immediately “throw” on the increase in income. In such a situation, special thematic webinars or personal consultations with financial experts can help. Both the employer and the individual can take care of training. Concern for financial stability, informed management of one’s own capital brings not only income. It is part of a larger complex phenomenon called “well-being”. With a cushion, with competent management of profits and expenses, financial problems catch up with a person much less often. In addition to personal confidence in oneself and in one’s abilities, productivity at work and in other areas of life increases.