Investing is getting out of the vicious circle of collecting, spending, debt, collect again, pay debt, spend, ask for more debt, etc. More and more people are living in this “rat race” and their relationship with money is quite insane. Dedicating a percentage of money to the investment and reducing expenses a little, will make us sleep much more peacefully and enjoy good returns in the coming years.
It is not a question of going hungry or living in austerity, it is simply a matter of keeping track of expenses and managing to allocate a small item to investment. In this article we are going to teach you the bases to start investing, it will be your will that makes the difference, but with this content you can start to achieve your goal from now on.
🧐 Take stock of your current situation
The first step begins with a balance sheet. On a piece of paper, an excel sheet or a Google Drive sheet create a document where the following appears:
- Money available in bank accounts
- Money available in effect
- Investments (if any)
- Debts (credits, mortgages, relatives, etc.)
- Total available
In this way we can get the real money that we have, which would be as easy to calculate as adding all the available money + investment – debts. Here we can make two different results, on the one hand the short-term total:
Money available in bank + cash – credit debts – family debts
And on the other hand, the long-term total:
Money available in bank + cash + investments – sum of all debts including mortgages
Now, we already have an idea of the capital that we have available in the short and long term and the debts, we go to the next point.
❌ Reduce expenses
The simplest thing is to start by reducing expenses. This way you will have more money per month to invest. To reduce expenses, the recommendation is that you write down everything you spend and, previously, have established some expense items. For example, € 150 on food, € 100 on leisure, etc. So at the end of the month you will know if you have spent more than what you had budgeted and you can analyze it.
It is not a question of living badly and bringing expenses to zero. The idea is to be aware of the expenses and avoid living beyond our means. There are current expenses that cannot be reduced, but others we simply do out of routine, to look good or to have a very punctual feeling of well-being and that do not contribute anything, only worsen our personal finances.
💱 Reduce debt
The next step is the most difficult of all, but essential when starting to invest. You have to get rid of all short-term debts. Although the idea would be that you also take off the mortgage, you can invest while still paying it, although you can opt for the formula 50% investment – 50% advance mortgage payment.
Therefore, the first thing would be to pay those credits you have, debts to relatives, etc. Only then, when you’ve paid for everything, can you think about investing.
💰 Security fund
Once we no longer have debts, we must build a security fund. No, it is not yet time for you to start investing. You will have to build a fund that you turn to in an emergency. For example, that you lose your job for a while, that your car breaks down, that you have to go to the dentist, etc.
If you did not have this fund, the moment any of this happened to you, you would have to resort to investing and if it coincides with a downward cycle, you would lose a lot of money. So the investment you have to think of it as something that is only touched when you have it fixed (or as a major cause of extreme need).
This recommended security fund is 12 months of expenses, although there are people who rush a little more and have it for 8-10 months and others prefer more security and opt for a 24-month fund.
💸 Simple investment: Index Funds
Now that you have your security fund created and you have no debt, the next thing to do is start investing. We could go to complex investments, but the most recommended is to start with the simple and here the index funds are unrivaled.
Yes, with index funds you are investing in the stock market so you can get returns above the one that banks give us of just 0.5% interest. But, with these funds you invest in all the securities of, for example, the Nasdaq. In such a way that if the economy goes well, which is what is expected in the long term, your money will go well and have a good profitability, without the risk of investing in a single security that your money and profitability will depend on what that company does. in the long run.
Investing in index funds is now much easier since companies like Indexa Capital have come out that make it very easy for us. We just have to deposit from € 3,000 and calculate your risk level. With this, the platform will distribute your money among the index fund to leading companies the percentage of risk and the other percentage will be indexed to public debt funds, which give less interest, but with greater security.
🤑 Invest in the stock market and cryptocurrencies
The most advanced level of investment. Once you have already gotten a good amount of money to invest in index funds and you have trained yourself on what they are, how they work, etc. The next level would be for you to learn about the stock market and cryptocurrencies to try to get more profitability from your assets.
This article falls short to give you the basics about investing in the stock market and cryptocurrencies, but we do recommend that you train well before putting your money at stake. Most stock and crypto brokers have demo accounts so you can try it out.