How to Start Investing as a Beginner to Build Wealth?

how to start investing
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Millionaires and financial experts have always shared their advice on how to start investing, but only lately it seems that the majority of Americans have thought to start investing in different domains too. Investing is the main key to financial freedom and getting rich – or richer than you already are. A study has shown that 56% of US adults own stocks. This is 1% higher than in 2020, but 6% smaller than in 2008.

If you are thinking of starting out but are not sure what kind of knowledge you are required to have first, you can relax. We created an easy guide to help you learn how to start investing. Because it might seem a risky domain, you will be provided with all the info you need.

Learn how to budget

In order to start investing, you need to learn how to constantly save money. You don’t need to have salaries on the higher end to do that, but to create habits and know a few tricks that will improve your financial wellness.

One of the most important tips is the “50-30-20” budgeting rule. It was popularized by Senator Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan. Basically, the rule teaches you how to budget the money after paying the taxes: 50% is allocated to your needs, 30% to what you want, and 20% is sent to your savings account.

Additionally, it helps if you choose to put your savings in a bank that offers multiple benefits. For example, this banking app is helping you to build credit and has overdraft protection. Their savings account options offer the possibility of an early direct deposit, to receive up to 7% cash back on gift cards and purchases. They also have a section with rewards to help their users save even faster.

We have also covered the subjects on how to save on your car, on taxes, and while shopping to assist you in starting to create smart habits in all the domains you are spending money on.

how to start investing
Photo by Carolina Grabowska

Get rid of debt

While you start building healthy financial patterns on saving, it will come natural to get rid of debt too. The earlier you break free from debt, the easier it will be for you to start seeing bigger investment returns. If your investment portfolio brings you 10 percent returns annually, it’s not a big win if they go towards debt.

Firstly, the debts are split into two categories. The first category is named unconstructive debt and includes car loans, credit cards, personal loans, and more. The second type is constructive debt which refers to things like home loans, which have an interest rate of 9%.

So work towards getting rid of debt first so you can fully enjoy the benefits of investments.

Have an emergency fund

Following the savings plan, a very important step is to build security. Life can bring unexpected surprises, sometimes good, but sometimes lessons that help us grow. This is available in the financial sector too.

While you might have put aside funds towards your different goals, you should include an emergency fund. It can be raised over time and according to financial experts it should be the amount that will last you between 3 or 6 months.

When calculating the expenses you have in a month, you should take into consideration these categories:

  • Housing expenses: From monthly utilities to rent or mortgage
  • Insurance: All coverages you have from life insurance to homeowner or car insurance
  • Taxes: FICA and income taxes
  • Healthcare: Health and dental insurance
  • Debt Payments: All kinds of loans you have (student, car, credit card loans)
  • Childcare: All monthly expenses spent on children
  • Living expenses: Shopping and groceries
  • Transportation: Gas, Ubers, public transport

Some financial advisers say we can consider adding in extra money if you have children. It’s recommended to add $1000 per child, per month. So if you’ve determined that your ideal emergency fund is $18,000 ($3,000 in monthly expenses x six months) and you have one child, you’d add in another $6,000 to the total ($1,000 per child x six months).

PROTIP: The emergency fund should be held in the house in cash to be available at any moment. Depending on everyone’s situation, sometimes taking cash out of credit cards can take some time due to loans, credit scores, or deposit rules.

Have an emergency fund for investing
Photo by Cottonbro

Use simulations before real investments

One of the main keys to investing is the experience. This type of knowledge you can get through two main sources: experts who have already done this for years, or an easier and quicker method: through simulations.

An excellent way of gaining the confidence you need and not risking anything is through investing simulation apps. Millennial Dollar’s recommendation is Tornado, which is one of the best investment apps in the field. It is appreciated by experts and has the latest features to help users learn how to invest in the safest ways.

If you wish to learn more about this app you can read our analysis on it: Tornado | A Guide on How to Invest in Stocks and EFTs.

Get advice

While using simulations is a great way to learn how to start investing yourself afterward, there are tips and tricks that could save you years of experience. By learning from someone who has already made thousands of mistakes you will go on the shortest road to success. By using both investment classes and simulations, your annual returns on investment will double in the shortest time.

Business Insider and The Wall Street Journal recommend one single app that brings together real-time moves from expert investors and a thorough guide on investments. By downloading Acorns you get access to smart portfolios created by experts. You are free to duplicate and personalize them based on your objectives.

The app also combines your personal checking, investment, and retirement accounts all in one. The benefits of this app are endless, while the main feature remains the solid knowledge on investments.

Now that you saw how easy is to start, you will start being in complete control of your savings and investments. It takes a strong will and perseverance from your side, and we bring the knowledge on how to start investing for your way to financial freedom.