What to do Before you Invest: A Checklist

What to do before you invest: A checklist
Posted by mycentsofwealth

Investing is such an attractive word right now for millennials. With all the information they can get online, with so many platforms offering appealing returns of investment, people are jumping the bandwagon right away. In order to protect yourself and your money, you need to prepare yourself before investing. Below is a friendly checklist or a “what to do before you invest” checklist.

  1. Have an emergency fund first. You don’t want to sell your investments in case something happens and you need the money, right? Have a backup plan, have an emergency fund. You don’t have to do the whole 6 months right away. I haven’t even completed my 3 months EF yet when I started investing. Find an amount comfortable for you and yes, you can do your EF and investing goals together. It worked for me. Click here for my emergency fund guide. 
  2. Read the basics and learn the key terms. Whatever you decide to invest, learn how it all works. You don’t have to be an expert before you start to invest. Just cover the basics and you will be good to go. You’ll even actually learn more along the way. Know the key terms. You can’t do any transactions unless you know what ASK and BID means in the stock market. READ READ READ READ. Lack of resources is not an excuse. One of the resources that helped me was the INVESTING SERIES by @brodfitz at Educate yourself.
  3. Lessen debt. Lessening, or better yet, eliminating your debt before you invest is important in your investing journey. While investing is an important step to our financial journey, you can’t really be free both financially and mentally if you still have debts weighing you down. If you don’t pay your debts and the market crashes, then you’ll have both debt and losses. Take care of your debt first. I do encourage investing little amounts while you are still paying debts, as long as you are on your path to being debt-free. This is what I did. Time is valuable after all. If you like totally paying off your debt before investing, that is fine as well. Find the right balance which will give you peace of mind. Personal finance is personal.
  4. Have the right mindset. Having the right investor mindset is equally important as knowing the technicalities of owning a good stock. Investing is emotional and an investor’s emotion can be their worst enemy. A normal person panics when they see a slight decline in his portfolio. They sell their investment immediately and get out of the market to cut their losses. Know that every stock is volatile and there will be crazy ups and downs. But also know that the stock market is generally moving in an upward trend. If you don’t believe me, google “PSEi performance chart since 1988”. It shows you how our market has been doing since 1988. If you are investing for the long term, this little up and downs shouldn’t affect you. Look at the big picture. When Bitcoin became popular, people immediately flocked to it for fear of missing out and not because they have studied it enough to be a worthy investment. I am not saying it’s a bad investment (because I don’t have enough opinion about it) but sometimes people just flock to it because they want to be “in”. Have a financial plan in place and stick to it. If you have that in place, you’re less likely to react to market swings or popular trends.
  5. Protect your money. Protect your money so that you won’t spend all the money you invested, for hospital bills in case something comes up. Protect your money so that you won’t spend your investment earnings in burial fees in case a family member dies. I never really understood how I can “protect my money” until I read How To YOLO Wisely by @hellonfg . How can you protect your money you ask? Get insurance of course. I’m sure not everyone will agree in getting insurance but my outlook has changed when I read that chapter.
  6. Set a NAME for your investment. Set a goal for your investment. Set plans and milestones. I call one of my funds as Switzerland fund because I’m planning to use that fund to fulfill my Switzerland dreams. I plan to contribute to that fund quarterly and track it. I set milestones for that every year. Seeing my progress inspires me to do more and make more. Please don’t just invest for the sake of earning money, set your why’s and your goals. Setting money goals was one of my game changers in my financial journey.

These are not strict hard-coded rules but rather guidelines on how to start. 

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1 Comment

  1. Jillsabs

    This is a great checklist! I strongly agree with the mindset bit because even if you have your safety nets (i.e. emergency funds, insurance) in place, if you haven’t come to grips with what the stock market really is, then you’ll just panic and sell high.

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