Are You Ready to Invest?
Overview
The purpose of this module is to give you an introduction to investing and to help you decide whether or not you want to start investing.
By the time you have completed this module, you should be able to answer the following questions:
- What is investing?
- Is investing for me?
- What basics do I need to know before I invest?
- What does it mean for me to be investment ready?
What is Investing?
Investing is when you invest in an asset, e.g. a share, so that hopefully over time, the share grows and you make money. It is important to note that there is no guarantee that you will make money or profit from your investments.
Investing means that you decide to not spend your money on things that give instant gratification – like a new outfit or lounge set, or even a night out or make-up. Instead, you put your financial future before your current wants by buying medium-long term assets.
Investing takes time and allows you to build true wealth. It is not a get-rich-quick scheme.
Is Investing for Me?
It is important to take a moment to consider your current situation in life to help you decide whether investing is for you. Doing so will help you understand your current financial position and what size risks you are willing to take.
6 Things to consider before you invest:
- Income stream – evaluating and understanding your income stream will help to inform your investment decisions such as when or what to invest in.
- What is your current financial position – do you still have a lot of debt that you need to pay off? Do you have some savings/extra cash that you can use to invest? You can decide if your money still needs to be used elsewhere or if you have the funds to invest now.
- Standard of living – what do you need to have a comfortable and enjoyable life including personal belongings, holidays, entertainment and luxury items? Are you comfortable now? Are you able to budget? Once you have established the money that is needed for the life you want you can then decide how much money you need for investing.
- Personal control – how much control do you like to have in managing your finances? Would you rather let someone do it for you or do you like to know what is happening with your money?
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Insurance – do you have enough insurance against risks to your property, possessions, income and well-being? This helps you understand if you can use your extra money for investing or if you still need to take care of these responsibilities.
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Need for financial independence – do you have a strong need to not rely on a pension fund? Investing may be an option for you to become financially independent.
What Does it Mean to be Investment Ready?
In order for you to be prepared to invest your money, it would be useful to carry out the following 5 exercises:
- Draw up a personal balance sheet by listing your assets (resources) and liabilities (bills) to determine your net worth (value of everything you own).
- Analyze your balance sheet and try to identify any changes you can make to increase your wealth e.g. can you replace a depreciating asset (an asset losing value) with appreciating assets – instead of 2 DVD systems you can sell one and invest that money.
- Begin to grow funds for you to invest e.g. sell some assets and reinvest that money; change jobs; lower your debt payments; get a side job to make extra cash; or cut down on expenses.
- Develop and/or maintain a positive cashflow where cashflow is a result of the money that is coming in (income) and the money that is being spent (outflows). The result will either be positive or negative cashflow depending on how well you manage your cash.
- Have a clear understanding of your long-term, medium-term and short-term financial goals.
NB: It is suggested that you speak to a financial advisor to
assess the above if you do not have the objectivity or
knowledge to do so.