That is the super concise investing definition that comes courtesy of Merriam-Webster. Regardless of where you invest your money, you’re essentially giving your money to a company, government, or other entity in the hope they provide you with more money in the future. People generally invest money with a specific goal in mind — retirement, their children’s education, a house, etc.
Investing is different from saving or trading. Generally investing is associated with putting money away for a long period of time rather than trading stocks on a more regular basis. Investing is riskier than saving money. Savings are sometimes guaranteed but investments are not. If you were to keep your money under the mattress and not invest — you’d never have more money than what you’ve put away yourself.
Things to consider before investing
First things first. Before you start investing in anything, you should ask yourself a couple important questions. These questions determine whether you’re in good enough financial shape to start investing right now. Here are the basics:
1. Do you have a lot of credit card debt?
If the answer is yes, you’re probably not in a position to invest quite yet. First, do everything you can do to erase that debt, because no investment you’ll find will consistently outperform the 20% or so APR that you’re likely forking over to a credit card company to service your debt.
2. Do you have an emergency fund?
In polite terms, poop happens. Layoffs, natural disasters, sicknesses — let us count the ways in which your life can be turned upside down. Any financial advisor will tell you that in order to avoid total ruin you should have between six months and a year of total living expenses in cash, or in a savings account should the unthinkable happen. If you don’t, bookmark this article, start saving, and come back just as soon as you’ve got that emergency fund squared away.
Beginners investing tips
Before we go over the specifics of what you should consider investing in, be it stocks, bonds, or your cousin Brian’s yak farm — let’s first go over the basics of how one invests.
Investing is what happens when at the end of the month, after the bills are paid, you’ve got a few dollars left over to put towards your future. No investing happens without putting money away. How are you supposed to find those elusive extra dollars to save? Here’s how.
Avoid lifestyle creep
In all likelihood, you’ll earn more in your thirties than you did in your twenties, and even more than that in your forties. The key to saving is to do your absolute best to avoid what’s called “lifestyle creep.” If you haven’t heard of this before, let us explain.
Lifestyle creep means that as you make more money, what once seemed like luxuries become necessities. Whole roasted pigeon and oyster concassé may be sublime and all, but just because you have the $626 to cover the tasting menu at Guy Savoy doesn’t mean you should. Instead, you should do your very best to live the same way you’ve always lived. Then put away the extra money you’re making from your raises rather than increase your spending. Skip the pigeon, get yourself a croque monsieur, and invest the 600 bucks you saved!
Start investing — even a little at a time
Once you’ve got savings, you’ll absolutely want to invest. Inflation will almost always outpace the interest rate that you’ll be able to get on a savings account. You’ll be effectively be saving and losing money at the same time. This is why you should start investing as soon as you can.
Investing is not just for the Warren Buffet’s of the world. If you are finding it tough to put away some investing money each month, try using a spare change app. These services round-up your purchases, allowing you to invest small amounts of money that you’d hardly miss. For example, if you spent $3.39 on a coffee then $0.61 would be invested.
Investing small amounts of money is a great habit to get into and your money will add up over time. If you’re looking for more easy ways to invest with little money, here they are.