This is a topic that I wish was taught in schools, primary schools even. Like a lot of things, the earlier you start investing the better. I strongly suggest researching the benefits of compounding interest. This is where your money grows exponentially over time, due to time the money spends in the investment, not ‘interest’ interest as that’s something we want to avoid.
In this article, I am going to break down the 3 steps anyone can, but especially the young ones can use to start investing. I also share my story of how I learned to be a successful investor by breaking it down into 3 steps.
Step 1 – Learn, learn, learn
This may be a no brainer but you will be surprised how I had ZERO idea of how investing was done.
When I decided to make my money work for me, I was lucky I had my father, who mentored me and took the time to teach me the value of money and the rules of investment. It also helped that he was the Vice President of Treasury in Abu Dhabi Islamic Bank and the people I got to mingle with and ask questions to people who knew a lot about investing.
Step 2 – Pay off debts
The main rule my father imposed on me was that before starting to invest, you have to pay off your debts. There is no point investing if you have outstanding debts. This is because the way our current financial system is set up is to benefit the lender.
The longer you take to pay off a debt, the larger it grows. Interest makes the debt grow exponentially. Compound interest when used incorrectly, will work against you. Before you think of buying anything on the stock market, put that money towards your credit cards, personal loans or whatever form of debt you may have. They will hold you back long term.
Step 3 – Set aside a percentage
Next, think about your future and dedicate a percentage of your paycheque towards that. Rain or shine, you must automatically transfer 10-20% of your pay to this bucket. A separate account works best. This is where you will get the money to start your investing journey. No one becomes a millionaire overnight but every millionaire started with ZERO. Start your ZERO today.
In order to do this properly and decide how much you’re going to pay yourself, you need a budget. What this does is force you into limiting your spending. Sticking to a budget will help you get disciplined and decide how much you have that you can pay yourself with.
The more you pay yourself starting young, by giving up on the glitz and the glam, the better. I’m not suggesting avoid living altogether, rather make it work within your budget and not the other way around.
Your budget sets you up for success because the money you’re putting away can turn into hundreds of thousands of dollars. This is because your money can have the opportunity to work its compound magic over 20 to 30 years.
Bonus step – Write out a specific financial goal
Last but not the least, set yourself very specific financial goals.
Like, how much money you want to have invested by your 30s or 40s.
This will help you understand how much money you have to invest each year. Which in turn leads you to understand how much you have to invest each month. Which then helps you understand how much you need to pay yourself from each pay cheque and decides your budget.