Investing 101: Beginners Guide for Employees

Investing 101: Beginners Guide for Employees

One verified way to achieve your financial goals as an employee is through investing. We all have different financial goals. For some, it could be to pay for their children’s tuition fees for college. For others, it could be to make a down payment on land or property. The quickest way to reach these financial goals is to start investing.

This beginner guide for employees will enable you to learn about investing even with little or no knowledge about finance.

What is Investing?

Investing is putting your money to use to gain financial returns. Note that investing is different from savings, and so is the risk tolerance. Firstly, savings is the money you keep aside for rainy days or emergencies. For instance, life happens, and you find yourself at the hospital; the money you will use to pay for medicals would have to come from your savings. On the other hand, it is a different ball game for investing, which requires that you put your money away for the long term to enjoy profitable returns.

As Wealthsimple illustrated, if you place $20,000 under a mattress in 30 years, it will remain $20,000. When you save the same $20,000 for 30 years, you enjoy but 2% interest, which will sum up to $36,337. But when you invest the same $20,000, you get $99,113 in return, a whopping 5.48%.

It proves that employees who invest have higher chances of earning more than their peers over the long term because investing helps you grow your wealth and reach your financial goals.

What should you do as an employee before you start investing?

Do your due diligence

Ensure you have gathered as much information about investing as possible because it is riskier than savings and challenging to access. Collecting this information will prepare you mentally for the volatility seasons of your investments.

Have an emergency fund

As mentioned earlier, life happens. Sickness, natural disasters, job loss, etc., can ruin your plans for reaching your financial goals. It is why it is financially wise to have cash living expenses that can enable you to bounce from unplanned events between six to one year.

Get out of debt

High-interest debts such as business loans borrowed from the bank or money lenders could reduce the money you should use to invest. Commit to paying off these debts to free up money monthly that you can use to support.

Get rid of impulsive spending habits

These compulsive behaviours compel you to make unnecessary purchases that leave you financially in bad shape. Getting rid of these habits will enable you to channel your money to invest. Some tips to help you get rid of impulsive spending include:

  • Stay away from triggers that compel you to spend above your budget. Avoid shopping malls or shopping websites. Instead, occupy your time with no cost or low-budget activities that would prevent you from spending impulsively. Some no-cost or low-budget activities to avoid impulsive spending include engaging in outdoor activities like walking or hiking, exercising at home, reading books from the library, trying out DIY projects, having movie nights at home, volunteering, exploring free local events, practising meditation, playing board games or puzzles, gardening, taking free online courses, and socialising at home with friends or family.
  • Make a list of the items you want to buy when shopping and stick to following the list. In doing so, you will prevent unplanned purchases and stay focused.

Why should an employee start investing?

You should put your money to use for many reasons to gain more financial returns. Some of the other reasons include:

  1. To reach your financial goals

Financial goals differ for each employee in an organisation. For one, it could be to have enough money stacked up in their accounts after they retire; for others, it could be to make a down payment on a house or perhaps for a child’s dedication.

  1. To grow your wealth

The longer you invest, the more your wealth grows, enabling you to achieve financial freedom, which makes employees who commit their money earn more than their peers.

  1. To become financially literate

As you dive into the investing world, you will become familiar with investing terms you need to learn about and become more financially literate. Which helps you to make better financial decisions as regards spending and saving.

Investing tips for beginners

Avoid lifestyle inflation

It is simply increasing your spending and expenses due to income rise. Instead of spending on luxuries that are not necessary, try saving those little raise. It will help you grow your wealth even more and not leave you in a bad financial state.

Diversify your investments

Diversify your investments instead of putting $10,000 on one stock you think will yield more returns. In doing so, if this investment does not end up doing well, you won’t worry about losing everything. Another way to diversify your investments is to invest in several industries and asset classes, such as stocks, bonds, real estate, etc.

Invest consistently

Regularly investing is the most appropriate way to grow your wealth that overrides short-term fluctuations in the market.

Understand your risk tolerance

You should know how much risk you are willing to tolerate before diving into investing. For instance, a person who intends to rent next month will likely be less risk-tolerant. This understanding will prevent you from being distressed should the market go up and down.

Seek help from a financial advisor

If you are still in doubt, should you start investing or not? Contact a financial advisor to create an investment plan to help you reach your financial goals.

Frequently Asked Questions

What is DIY investing?

It is simply the practice of managing your investment by yourself, particularly when you have smaller portfolios and won’t need a financial advisor to manage them.

What is considered a good investment?

A good investment is an investment you trust will meet your needs and help you reach your financial goals.

What is an investment portfolio?

It is a collection of all your investments regardless of the asset classes, such as ETF, stocks, bonds and real estate investments.

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