Let’s be honest. If you are reading this you may be wondering how to start investing from scratch. And we get it; with so many weird graphics and complicated technical terms, you may feel as lost as a needle in a haystack. But don’t worry, the whole process is much easier if we divide it into five simple steps.
Imagine you are trying to build a Lego set. You may feel overwhelmed at first seeing all the little pieces you need to turn into a huge structure. However, if you look at the manual and follow the instructions step by step, you will reach your goal before you know it. Well, the same thing happens when you try to understand how to start investing from scratch.
1. Understand the basics of investing
Before we talk about the practical steps to learn how to start investing from scratch, it’s important to understand what it means to invest and why you should do it.
As complex as it may seem, investments are not rocket science. Investing is simply using your money to buy assets in the hope that they will generate income or increase in value in the future. In other words, it’s making your money work for you to make even more money.
Millionaires like Barbara Corcoran and Grant Cardone say that saving does not generate wealth, but rather it is achieved through investments.
If that’s not enough reason to start investing, here’s more: if you don’t invest your money, you’re losing it. This happens due to the phenomenon of inflation. Currencies like the dollar and euro are constantly devalued and that is why the cost of living is always increasing. Investing is a measure to mitigate these effects and prevent your money from losing value.
2. Build a solid financial foundation
Now that we know what investments are and why they are important, make sure you have a proper financial foundation to know how to start investing from scratch.
There are many important principles in the world of investing, but there is one golden rule that you should always remember: Never invest money you are not willing to lose. This means that before you start investing, you need to get your finances in order with three key tools.
Make a budget
The best way to build a solid financial foundation is to make a budget. A budget is a plan for how you will use your money over a period of time. This first step in the process of investing from scratch may seem a little boring, but it is certainly necessary to avoid problems in the future.
💸 Learn how to make a budget from scratch
A survey carried out in the United States has proven that 74% of the United States population uses a monthly budget to manage their finances in the best way. Why? Well, keeping track of your income and expenses gives you a clearer view of where your money is going and helps you make smarter decisions.
Build an emergency fund
An extremely important measure you should take before investing from scratch is to build a financial safety net; we know this as an emergency fund.
Whether it is a car repair or a medical emergency, we will never know what surprises life will throw at us. It is necessary to be prepared for everything. In case of any eventuality, you should make sure you have a lifeline of cash to stay afloat.
🛟 How to build your emergency fund
Experts recommend building an emergency fund equal to 3-6 months of expenses and keeping it in an interest-bearing bank account that gives you easy access to your money.
Pay off your debt
Trying to meet different goals with your money decreases your ability to focus your resources. If you pursue different goals at the same time, you probably won’t be as effective at doing them. It’s like doing everything and nothing at the same time.
Dave Ramsey, one of the most influential financial personalities of recent times, recommends not investing your money until you have completely paid off all your debts, except for your home mortgage.
⛄ Pay off your debts with the snowball method
One of the easiest methods to pay off your debts is the snowball method. It’s about organizing your debts by size and following a specific order to pay them all in full. Anyways, whichever method you choose, paying off your debt will clear the way to an efficient investment path.
3. Identify your goals and your risk tolerance
Once you have made your budget, your emergency fund is ready and you have paid off your debts, ask yourself: Why do you want to invest your money?
Do you want to generate a new source of income? Or simply grow your savings and assets? Setting clear goals for your investments will give you direction and purpose. Being a successful investor is not just about betting your money on big companies and seeing what happens. Identifying your goals will make decisions about which stocks to invest in, when to buy, and when to sell easier to make.
For example, if you want your investments to generate income, you can invest in rental real estate properties or dividend stocks that give you payments from time to time. On the other hand, if you prefer to take a more passive stance and simply let your money gain value over time, you can invest in government bonds or ETFs that mimic stock market indices.
Another important question you should ask yourself before investing from scratch is: How would you feel about losing all your money on an investment? This is a crucial question to understand your risk tolerance level.
Do you consider yourself a conservative investor who always plays it safe? Or do you prefer to chase slightly bigger wins no matter how much money you put on the line? Absolutely all investments have some level of risk. However, knowing how much tolerance you have for changes in the market will also help you make wiser decisions when investing.
4. Make your own research
According to Warren Buffet, one of the most successful investors of all time, you should never invest in something you don’t understand. Therefore, the last preparation step before starting to invest from scratch is to carry out extensive research on your investment possibilities and how each of them works.
When you enter the world of investments you will find countless options. From peer-to-peer loans to cryptocurrency investments; high yield accounts and futures. However, believe it or not, one of the simplest investment methods for beginner investors is the stock market.
If you think about the stock market, you’d probably imagine a place reserved for millionaire tycoons with doctorates in finance. But leaving stereotypes aside, investing in stocks is an accessible measure for anyone nowadays. It is no coincidence that online trading platforms have become more popular lately. In fact, one study shows that 64% of Americans own stocks on the stock market.
📖 How to invest in stocks (Beginner-friendly guide)
If investing in the stock market is an option you want to explore, look at our article on how to invest in stocks. It is a very complete guide that can give you an introduction to the stock market and take you by the hand through the entire process. It will surely be the instruction manual you never knew you needed.
5. Start investing from scratch
Great. Now what? Once you choose a financial instrument to invest in, it’s simply a matter of taking action. FlexAcademy is a portal specialized in stock market investments, so in this article we will guide you on that path.
In ancient times, anyone who wanted to invest in stocks had to be accompanied by a broker. This was the agent in charge of executing the buying and selling transactions under the instructions of the investor. Fortunately, modern technology allows anyone to become a stock investor without the intervention of a broker. Now, you too can start investing from scratch; the only thing you need is an internet connection.
One of the digital platforms that eases this process for you is FlexInvest. You can create your investment account with a few clicks and in minutes. From there, you will have access to hundreds of stocks of the most important companies in the world. You will find trending news and analyst ratings that will help you make the wisest decisions.
And the best part is, with its fractional shares feature, you can buy your first share with as little as $5. It couldn’t be simpler!
This is where determining your goals and risk tolerance comes into play. First, you’ll need to decide which stocks are a better choice for your portfolio. Then, over time you will have to monitor the performance of your investments to make decisions based on your previously defined strategy.
Yes, it may seem like a complex mission. But if you set the right foundation, this process will become increasingly easier as you gain experience in the market.
The takeaway
Now that you know these simple steps to start investing from scratch, it’s time to get to work. Start by getting your finances in order and setting your investment goals. Take some time to learn a little more about the investment path that suits you best. If you choose stock investments, FlexInvest will be gladly waiting for you.
Remember that patience and the long-term perspective are your best friends on this journey. Investments are not a sprint, they are more like a marathon. So even though the market may have its ups and downs, stay calm and move forward with your goals in mind. All of FlexInvest’s useful features will be there to guide you every step of the way.
💰 How to invest little money and make substantial gains
One last piece of advice: Never underestimate the power of continual learning. Knowledge is power and financial education is the key that will help you achieve success. So, even after you start investing, continue to educate yourself. Make sure to explore the rest of the articles on FlexAcademy; you will surely find more investment tips that may be useful to you.
