Why You Should Invest Your Money Not Just Save It Why Dividend Investing can be a Massive Tool for Building Wealth Passive Income
Before you ever invest a dime, make sure you can answer these 4 questions!
Too many people get excited to invest way before they should (& I understand that. It’s exciting to have your money in the market (whether that’s the stock market or in real estate). But how do you know if you’re actually ready to invest? How do you know putting your money in investments is the best decision for you? What if you could get a better return somewhere else?
1.What’s my cashflow situation? (0:50)
Focus on your own balance sheet (assets vs. liabilities 101). You want to know what you have coming in vs. what your expenses are every month. Too many people put all this focus on analyzing a company’s balance sheet, but don’t balance their own personal finances first.
So the first thing you should do is get your personal financial situation in order & focus on generating a positive cashflow month in & month out. If you’re spending more on a monthly basis than you’re pocketing, the first thing you have to do before you ever invest a single dollar is Increase your income or decrease your expenses.
You can create a budget or even get rid of unnecessary expenses you don’t need or use.
2.Do I have any high interest debt? (3:26)
Pay down high interest loans first! If you have a 10%+ loan then your main focus should be to pay off that loan. The average return per year in the stock market is 8%. But if you have a high interest loan you would get more bang for your buck paying off your loan quicker with the money you would’ve otherwise put in the market. Chances are your market return is not going to be more than the interest you’ll be charged on that loan anyway. So the smartest thing to do in this situation would be to pay off your high interest debt first. Now you might be saying “10%+ that seems crazy high. Who’s got a loan like that? But you would be surprised! A lot of people have credit cards that charge up to 15% interest (or even 20%). A lot of people take out car loans with high interest too. You should not be investing a single dime before paying that loan off or refinance to something lower than 8%.
3.Will I ever go into debt again? (5:23)
The way you answer that question with no is by having some sort of emergency fund. The general recommendation is to have a fund of about 6 months expenses. You can do this with a high interest savings accounts (preferably one with no fees). You can do this with a money market account too. One of the ways I’m actually implementing this is by using a Roth IRA to double as my Retirement fund AND my emergency fund. The reason you can do this is because a ROTH IRA is a retirement account you fund with POST TAX income. That means you don’t get taxed on it when you pull money out of it or pay a penalty for pulling money out early. I have my Roth IRA through M1 Finance. If you want a free $10 to start your Roth IRA on with M1 Finance, there’s a link to grab that for free lower in the description.
4.Do I really understand what I’m investing in? (6:55)
The last thing you want to play around with is your money & if you don’t educate yourself before you invest…then chances are you WILL LEARN, but it’ll be through your failures.
My recommendation would be to educate yourself on the basics of investing & form a plan.
If it’s a dividend stock look at the history of their dividend payment & whether it’s gone up, whether they’ve paid it out or whether they’ve ever cut it before.
Bonus Tip: Invest in yourself & in your Business (10:18)
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