How much income do you have? Figure out how much money you have to invest. What is your monthly take-home pay? If this number isn’t immediately obvious, start looking through your bank statements and credit card statements. If your income varies month to month, average it over the past few months or a year. How much of that income can you set aside each month?
The best answer we can give here is whatever percentage feels comfortable for you—and we mean that positively! If it feels overwhelming, even scary, to think about investing 10 percent of your income, then invest less than that. The important thing is for investing to be sustainable for the long term—that means not dipping into other accounts or going into debt so that you can afford it!
What is your investing strategy? Now that you have an investment account, it's time to decide your type of investing strategy. There are several types of investing strategies, and knowing the differences between them is crucial in choosing a method.
There are two main types of investing strategies: Passive and Active investing. Active investors aim to generate above-average returns that match or exceed market averages over time by making a few strategic investments. Passive investors spend less time researching potential investments than active investors, who strive to outperform the broader markets across all investments they make at any given time. Choosing between these two options may seem daunting if this is your first investment account, but in reality, the choice largely depends on how much time you want to commit to analyzing your investments. Regardless of which type of investing strategy you choose, it's vital for you — the investor — to define your personal goals. Defining your goals will help guide you toward an investing strategy that will allow you to maximize returns while minimizing risk so that your money works for you as effectively and efficiently as possible!
What are your financial goals? Write out what your financial goals are to give your investments purpose. When it comes to financial goals, the more specific and detailed, the better. This will help you plan the exact course of action needed to reach your goals and bring them closer to reality.
Here are a few examples of financial goals:
- Going on a two-week backpacking trip through Ethiopia for R15000 in six months.
- Finishing my degree in two years with a part-time job that pays R10000 per semester.
- Purchasing an engagement ring for R8000 in one year so I can propose to my partner.
What is important here is that they are all precise and measurable. You know precisely what you want and how much it costs; now, all that's left is working towards it!
What is your time horizon for investing? How long to invest is implicitly answered within your goals. Your time horizon refers to how much time you have before you need the money you’re saving/investing.
Let's say, for example, that you put R100 into a savings account every month. If you will need the money within three years, then it's safe to say that your time horizon for this particular investment is three years. In other words, if all goes well and your investments perform well (aka make money), then those assets should grow enough over the next three years so that the value of your initial R100 per month savings will cover inflation and costs for that period. The key here is having enough time to see any growth of your investments so they can work their magic and make more money for you!
What are all the fees involved?
Each kind of asset that you choose has specific fees that apply to it. Buying shares comes with different fees than buying a property or a goat. Explore all the costs of each investment you make before confirming the buy (or sell).
In Summary:
Once you have an investment account, the next step is to build your portfolio. This process will happen over time, as you’ll want to do your research on specific stocks or funds and determine how they fit into your overall goals.