Investing in the stock market is becoming increasingly popular among young adults. In 2020, almost 600,000 Germans under the age of 30 invested in shares – an increase of almost 70 percent compared to the previous year. Many consumers bought in while prices were low due to the pandemic in the hopes they can reap rewards when the ‘new normal’ kicks in. Some of those people were completely new to the stock market and started without being properly prepared. Others refrained from investing because, among other reasons, they were all too aware of their lack of understanding of the stock market which left them feeling discouraged or overwhelmed. Whether you identify with the first or the latter, this article is for you! We will introduce you to the 4 fundamental steps you need to take before you start investing.
1. Are you ready to invest?
Should you save or invest? The answer is: both. Regardless of your investments and the fluctuating stock market, you always need some savings at hand for unexpected expenses. If you suddenly find yourself without a job you should be able to live off your savings for 3 to 6 months. That’s what we call an emergency fund. Naturally, you shouldn’t start investing if you are deep in debts. In that case you should focus on becoming debt free.
However, if you are debt free and have a sufficient emergency fund you can consider starting to invest your money. A big myth about investing is that you need a big starting capital. Investing is not only used by the rich to get richer. You can start investing at any time on a monthly basis with the help of a savings plan.
Do you already have an emergency fund? Good job! You can skip this step! Not yet? Then take the time to calculate how big your emergency fund should be and how fast you can grow it by adding 10% of your income every month. Just use this emergency fund calculator:
(3-6 months of your monthly spendings) / (your net income *0,1) = the number of months you need to save up for your emergency fund.
2. Define your financial goals
When it comes to your financial life it is important to think about your “why”. Why do you want to invest? What are you working towards? Setting short term, mid term and long term financial goals is one of the most important steps towards financial security. A short term financial goal might include saving for a new couch while a long term financial goal might include retirement. Setting goals strengthens your motivation and increases your chances of experiencing a positive outcome. This will in turn improve your money mindset. Your money mindset is a combination of your own beliefs and attitudes about money and has a huge impact on your financial behavior. If you believe you will never pay off your debt or have enough money to retire comfortably… guess what? Then you probably won’t. Financial goals help reshape your money mindsets by overwriting old beliefs with new successful experiences. That’s when the mindset shifts, you start believing in yourself and begin to see all of the amazing opportunities around you.
3. Learn the basics through financial education
Once you have decided you are ready to start investing, you’ll be confronted with the following question: where should I invest? Many beginners feel discouraged by the endless possibilities and the ton of information out there. But don’t you worry because once you have your positive money mindset and you understand the fundamentals of investing through financial education you will see it’s not that incredibly complicated after all. Experts generally agree that financial knowledge appears to be directly correlated with self-beneficial financial behavior. In fact, financial education and financial inclusion are recognised at the highest policy level as essential ingredients for the financial empowerment of individuals by G20 leaders. I can hear you thinking “Ugh that sounds like a lot of time and effort”. That’s exactly why we are building an app to make financial education smooth, fun and accessible. You can change the way you feel about finance and we are here to make it something to look forward to! Learn everything you need to know about the stock market, bonds, ETFs, risk management and let the feeling of financial empowerment wheel you in! Before you know it you’ll be ready for the next step: building an investment portfolio!
4. Open your portfolio
The heyfina-app will offer an all-in-one beginner friendly all round financial experience. This final step is about putting everything you have learned into practice! After you have learned the basics with our courses we will show you how to set up an investment portfolio for yourself. A portfolio is a collection of financial investments like stocks, bonds, commodities, exchange traded funds (ETFs) and more. A portfolio can also contain investments in the shape of real-estate, art or other collective items! Building an investment portfolio from scratch can seem like an overwhelming task but we are here to guide you.
Heyfina is on a mission to break down all barriers to investing starting with financial education that doesn’t make you yawn. The heyfina app will offer a range of short bite sized modules that teach you all the financial know-how so you can start investing and make your money work for you. Subscribe on the right to get notifications when more posts like this are published in the future.