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Sunday, August 26, 2012

When Should I Start Investing?

My Sundays are always occupied by a hell of activities and therefore, today wasn’t any different. Given that Saturday night is “Movie Night” waking up on Sunday morning is usually a big task. However, being ‘staunch” church goers, everyone in the family made it up by 10 am. My 10 am alarm was a bitter reminder that the day had just broken and so I woke up to face my most boring day – Sunday. As usual our mass takes 2 hours and so means by 1.00 pm we are through. Mass is somewhat a boring session for young people but we rarely have a choice. What about following that with a 3 to 4 hour shopping? Pushing the trolley behind your mum/dad as they collect this and that meant to be used in the house?
Despite the many boring activities which fill up my Sundays, it still remains a day I look forward to. Sunday is the only day I get to sit with my dad to ask him question pertaining to investment, family life and employment. This usually happens shortly after shopping, mostly in restaurants, as we gulp a few bottles of sodas. This is the only time we have a father-son chat as the ladies (mum and sis) are busy in the saloon.
Today my dad whispered something into my years. I didn’t get it at first and wondered why he had to whisper it, in the first place. “You should start investing almost immediately….” he repeated upon request. These words stuck me hard; I have only just landed my first employment two months ago and know investment will follow – but not now, of course.
Perhaps you have been asking the question: “when should I start investing?” but, as is expected, have not yet settle on a satisfactory answer.  We are definitely not alone.  Most individuals push investment to the back burner simply because they aren’t sure of when, where or how to initiate the process of building their nest-egg.
As a matter of fact, many people want to start building their investment portfolio, but just aren’t ready to take the plunge. Even if they were ready; they lack the knowledge of where to start. In this post, I am going to focus on the readiness question.
The most apparent answers
People are often reluctant to tie up their money in long term investment until they have accomplished a couple of milestones.
  1. High interest debt is paid off: You first priority should be to get rid of your high interest consumer debt before embarking on investment. Some debts are just annoying like the student loan and mortgages. If possible, put your investment plans on hold and clear these loans first.
  2. Building Liquid savings Buffer: It is very important to have some money set aside for use in times of need. Therefore, make sure you have enough money saved in a high interest paying savings account before you start investing.
Apart from emergency savings and debt reduction, there other several factors which may influence your investment decisions.
Other important factors to look into:
  • Job status: Is your current job stable enough? If you have a stable job, a solid savings and zero (or near zero) high interest debt, then you can start thinking of locking some of your income in your retirement plan. If your job situation is still shaky and you may face the axe any moment, you would rather stash more backup funds into your savings account.
  •    Age: There is no precise age to start building your nest-egg. However, the sooner you start the better. Having said that you need to get a stable job, pay all your debts and even have adequate liquid cash in your savings account before you start investing; my argument on age may sound like a contradiction. It is not. If you can satisfy all these pre-requisite conditions, then start investing “almost immediately”. Starting early will help you take advantage of compounding.
  •   Children: Having children may tempt you into saving for their education. However, this shouldn’t come ahead of investing or retirement savings. Consider remitting 15% of your monthly income into your retirement scheme before you start saving for children education.
  • Insurance policies: It is vital to have the proper type of insurance at each stage of our lives. Our investment decision should not be made without balancing the investment strategy with an insurance coverage appropriate to our situation. Disability insurance health insurance, life insurance cover and long-term cover are all important and should be considered together with the decision to invest.
  • Marital Status: My dad’s argument was that it is good to start investing before I get married as this protect me from the “wastefulness”. Women are known for their addiction to spending, sometimes unnecessarily. The old man therefore sees them as a distraction from achieving lifelong investment goals. However, I feel investment decision is a tricky one and therefore you may need a second sound mind to help you through. This does not mean that you should wait till you marry to invest. If you have your better half and you are considering starting any kind of investment, it is better to involve them.
In conclusion
While there are numerous other factors to put into consideration before you start investing, the list above can act as a good foundation and help you start in the right direction.
Making financial decisions require sound reasoning and cautious movement. Always ask questions and consider as many influencing factors as possible. If necessary, consult a professional.

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