Investment is an important part of any personal finance strategy. But like all aspects of sound finance behavior and planning, it’s all about process. To succeed, maximizing wealth and security, it’s important that these steps be performed in order, and that each be completed before continuing on to the next. Investment is one of the only ways for the everyday person to solidify finances for the future. But to create investments that mature and grow, without jeopardizing your everyday living, there is a foundation that must be laid.
First, learn about investing. A lot of people wouldn’t put this step first. The reason it’s at #1 on this list is because learning is a tremendous motivator. Learning creates possible futures for people, where they couldn’t have before imagined them. Spend a few weeks reading about investing whenever you have the time. Understand the difference between novel day trading variants like binary options and more traditional investments one might make in stocks, mutual funds/ETFs, and/or real estate/property. Once you begin to understand the lay of the land, you’ll be much more likely to wish to do some of this work yourself. You’ll start to understand the distance between where you are and where you could be. Personal finance mastery is made much easier when you have a solid understanding of these principles, so do some reading before you start crunching numbers.
Next, it’s time to start to put your everyday spending and saving in order, so that you have a firm foundation on which to enact more complex financial systems. The most fundamental thing that you must do is eliminate debt. This is because debt almost always accrues faster than wealth. Credit card, and other high interest debt, is your number one target, and it should be attacked aggressively until it is gone. When debt is gone, you can start saving with purpose. Saving serves to prepare you and your dependents for the immediate future. Try to save enough to cover your living expenses for six months. This is an emergency fund, and it’s an amazing mental support, providing you with peace of mind for the uncertainty of the future.
Finally, start investing. In some ways, every dollar you allocate is an investment, regardless of the purpose. But you will want to invest intentionally, in such a way that your wealth increases steadily for the rest of your life. You can do this through traditional retirement investments, through buying the home you live in, investing in real estate that others will rent from you, buying individual stocks in companies you work with or know a lot about, and many other examples. Diversify your investments. Find some which mature with little risk over decades. Find some that have higher risk and greater growth possibilities. Finally, consider taking on high risk investments, with great potential for big dividends, as long as you understand what you’re doing and can make educated choices on the matter. By now, you will have learned about investment pretty well, and will be able to make great investment choices for your future, without worrying about problems in your everyday financial life.