Whenever I tell people that I’ve been investing for 4 years now, a common response would be that they too want to start investing.
They get excited about the possibility of getting a nice return on their money through investing. So, as soon as they have a little bit of cash in hand, they’re ready to invest.
They want to make their money work for them, and that’s completely understandable. Most of them do get started but not many continue to stay on the path.
As time goes by, I found out that they are not able to follow through on what they initially planned to do because they had no focus.
Let’s be clear on one thing: The groundwork needed for investing is something that anyone can achieve with some time and effort.
Here are five things that you should focus on when you start investing.
1) Focus On Your Financial GoalsThere is a reason why this is at the top of the list.
Without a specific purpose in mind, you will not be able to assess your time frame for investing and how much risk you’re willing to take. Both of which are vital questions to ask when it comes to investing.
For those of us who have been investing for a while now, we know how much uncertainty can be wrapped around the stock market.
Over the short-term, the market is extremely volatile and unpredictable. However, over the long haul (think 10 years or more), the stock market delivers an average return of 9% after accounting for dividends.
Start with your own personal goals. Why are you investing? What are you hoping to do with this money?
Figure that out before you invest a dime.
2) Focus On Eliminating Your Worst Spending Habits
At the end of every month, the bank would send me a copy of my personal account statement. It would detail how much money enters and leaves the account.
The main goal is to make sure that the amount of money entering my bank account far exceeds the amount of money leaving it and the difference from both numbers would be the total savings.
Money Coming In – Money Going Out = Savings
There are mainly two ways to increase one’s savings:
1. Earn more money
There are many ways this can be achieved; getting a job that pays more, taking on a side project or even starting a business.
2. Cut down on spending
This is the part where we should focus on because that’s something all of us can take direct action on right now and see results almost instantaneously. This will then lead me to my third point.
3) Focus On Getting A Constant Stream Of Cash FlowThe purpose of doing this is simple:
We reduce our spending or increase our income and by doing so, we create excess cash flow.
By creating excess cash flow for ourselves every month, we would be able to accumulate a substantial amount of savings by the end of the year.
As investors, we can take a portion of our savings and channel it towards our investments.
The most critical point to take away from here is this:
Doing so will allow you to compound your money year after year. Compound interest is one of the most powerful force in investing.
“Money makes money. And the money that money makes, makes more money.”
4) Focus On Buying A Business, Not Trading A Stock
Investing in the stock market is all about taking a part ownership in a great business and letting it grow and flourish over time.
Too many investors get carried away by what the ticker symbol is or by making it all about the charts and graphs. When we decide to invest, we are fundamentally buying into the company’s prospects and future.
By simply looking at it as a stock that one can buy or sell, we can easily lose focus of what the stock market is for. Think of it as buying a business we are interested in owning for years to come and the returns will follow.
5) Focus On The Investing For The Long HaulThe chart above dates back into the 1990s when the S&P 500 trades at roughly $50 a share. Despite the financial crisis in 2007 and all the other market corrections, the market index showed an overall increasing trend.
As of 03 June 2016, it trades above $200 a share.
I’ve met and spoke with many people who can’t wait to get started with investing without having the things on this list ready. We are all guilty of losing our focus every now and then.
Focus on these five things and the process will be much simpler.