Investing is a âHigh-Levelâ skill in achieving financial freedom. This doesnât mean that itâs difficult to do. It simply means that you will have to develop a lot of OTHER money skills before you start investing. If you try investing WITHOUT these more basic skills, then investing for you could be very difficult, unsustainable or even impossible.
In this step, weâre going to zoom out from the stock market, and look at the big picture in your path to wealth (I prefer to call it the Game of Wealth). So whether youâre only starting or have been investing for a long time already, this article can serve as your checklist if you can and are able to build a good foundation on your investments.
Note: If you âfailâ in this test, donât worry. I will have something to help you at the end of this 'test'.
The Investing Readiness Test
1. Do you have a stable source of income?
In order to invest, you need to have a stable source of income first. So if you donât have any income source, or if you think your income is too low, then your best move is to focus on increasing your income first, instead of studying the stock market.
Remember that investing can only MULTIPLY what you have. If you multiply zero with 1,000,000 youâll still get zero! So if you have âzeroâ right now, work on ways to ADD to your wealth first (ex. getting a job, part time rakets, starting a business, etc.)
2. Are you Buried in Debts?
If you have credit card debts or accounts with a loanshark (5-6), then investing in stocks may not be the best move for you right now. The best move for you actually is to repay those high-interest debts first!
Why? Because credit card interest rates go up to 30% a year, plus penalties and financing charges that happen every single month. While the stock market on average can only give you an average of about 10-12% per year.
So getting rid of those ridiculous interest payments from your debt will be a much wiser move that will free up your cashflow. So pay your debts first now, so you can invest bigger and safer in the future.
3. Do you have an Emergency Fund and Insurance?
One of the most common reasons why people lose money in stocks is because they are forced to sell their investments at a loss when an emergency happens. This is the reason why having an emergency fund and insurances are important.
An emergency fund is savings in cash worth 3 months of your monthly expenses. So if youâre spending P50,000 a month. Your emergency fund should be P150,000. This is so that if an emergency happens (like if you suddenly lose your job), you wonât be forced to sell your investment prematurely.
Then the insurance here means coverage for any health and accidental emergencies. If you own a car or a home, it would be good to have your auto and home insurance. Again, the purpose of this is so that when an emergency happens, it wonât affect your stock market investments.
These 3 things: (1) having a stable source of income, (2) being debt-free, and (3) having emergency funds and insurances are what form a stable financial foundation. Note that these arenât really ârequirementsâ to investing. But hey, they will help you a lot in the long-run as they serve as protection for your stock investments to be able to grow safely.
So are you ready to invest?
YES â Proceed to Step #3 by clicking here.
NO â Iâll show you how to build a solid financial foundation first here.