Postpone Your Investing Plan !

Do you know your monthly expense ?

In other words, do you have budget? Maybe you ask, “Why do I need to know this?” Well, this is something to do with the very fundamental of investing. Investing is basically to make your spare money making more mpney. The keyword is spare.

For example: if you earn regular salary of $50,000 per year. You need to know how much exactly you take the money home after tax. Say if your income tax is 30%, then your “take home pay” is only $35.000 per year or $2916 per month. How much you need for mortgage? How much for grocery shopping? How much for credit card repayment? Electricity or Gas bill? Phone Bill? Car Insurance? School Fee?, etc.. The bottom line is,  you need to know exactly whether or not the “take home pay” that your have will be enough to cover everything. Only then you will know how much the “leftover” for your “investing” account.

If your pay is not enough, then you need to do some actions to reduce your expense or increase your pay. Budgeting will definitely can help you in this matter. If you have never make a budget, you might be surprise that it doesn’t have to be fancy – just like this will do.

Investing Carry Some Risk

Emergency Fund Before Invest

Then, as you probably know already, investing has some risk. Some risk higher than the other, some can be mitigated or even eliminated, but small or big there is risk involve.

For example: if you “invest” your next month homeloan/mortgage money to buy some stocks in stockmarket and “hoping” that it will produce extra profit, then this is not investing. This is more “gambling” than anything else. What if the stockmarket crash? — happened several times already and make you cannot pay your mortgage? Will it be a start of a disaster? You betcha….

So, as hard rule, any money that you are willing to use for investing, you need to be able to (of course, you don’t want and should not) lose it all without affecting your life. If the result of your “investing” activity is very crucial for your day to day life, then it’s very risky activity – definitely not investing as it is.

Emergency Fund /Money – A Must Without Question: The Financial Protection

One more aspect of investing , sooner or later, everyone of us will experience something bad happen in our life. When it comes to financial matter, having an emergency fund can be very important to overcome the problem without ruining your long-term life. For example: what happen if suddenly the economy collapses and you got no job anymore. How do you survive ?

Therefore as rule of thumb, before doing any investing, you need to save money first to get this “emergency fund”. How much ? It should be at least 6 months worth of your living cost. If your living cost is $2500 per month, you need to have at least 6 months x $2500 = $15,000 in your hand. Cold hard cash of $15,000 should be in your pocket or your saving account all the time to weather any problem. Of course, the assumption is , if something abd happened, you should be able to recover or improve the situation within 6 months.

This financial protection is actually the first level of what so called “financial freedom” – read more here.

What You Will Do

So, what you will need to do is:

1. Have a budget to know exactly your living cost and potential saving
2. Collect dollar by dollar until you have 6 months worth of living cost in the bank! This is your emergency fund – once you get it do not touch this – only for emergency.
3. Collect dollar by dollar until you have good capital to start your investing (maybe at least $10,000)
4. Start doing your investing strategy
5. Review budget and add more emergency funds once you start earn more money from investing
6. Build your investing portfolio to earn more passive income

Investing Become More Enjoyable

Once you do the above, investing will become more enjoyable. The money from your salary will keep supporting your living cost. But you have other “investing money” that worst case , if the investment tanks, it will not disrupt your life. And more importantly, your “investing” is no longer “gambling” where you force the result to be always good. Remember in investing, sometimes you win sometimes you loss, but you need to make sure you win more than lose.

So, postpone your investing desire as yet ! Do the above !