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How To Start Investing

When you work hard, you set the law of cause and effect to work for you. If you work for a corporation, you will slowly start to improve your position within the company; and if run your own business, you will slowly start to generate more business. While working hard will set things in motion, working smart will speed them up. You will produce more and earn more for every hour you work when you become more focused, disciplined, and systematic.

Yet despite the merits of working well and productively, this is just the beginning of your wealth journey. Exchanging time for dollars has a serious constraint: your cash-flow will slow as fatigue set in. Additionally, there are only so many hours in a day that you can work. So, at some point, you must learn how to use your money to make money. You must learn to become an investor.

3 Basic Steps to Becoming an Investor

Step #1: Increase the difference between money coming in and the money going out.

Before you learn how to invest, you have to get better at managing your money. Basically, master the art of earning more than you spend.

There are two benefits to learning how to manage your money better: first, you will be able to set aside money, put it in a savings account, and then use this as seed money to begin investing; second, once you learn how to budget a small amount of money, it will be easier to handle large amounts of money–because the principles are the same.

Here are some ways that you can get better at money management:

1) Bundle your services to save money. AT&T (NYSE: T) provides a good example of how to build a better bundle. AT&T internet plans allow you to stream TV from up to five devices, obtain HD DVR, and get a Wi-Fi Gateway router for less than $100 a month.

2) Reduce your daily food costs. You can still eat well without paying as much for it. Simply take your lunch to work rather than eating at a deli and make your own coffee rather than stopping at Starbucks (Nasdaq: SBUX).

3) Track all your expenses for a month, and then distinguish between fixed and variable costs. Fixed costs are costs that you must pay for a service that you need. For instance, your phone bill is a fixed cost. A variable cost is a cost that you can decide to pay or not pay. For instance, paying for an online membership for an educational or entertainment program is something you are free to discontinue without serious consequences. Once you have a better understanding of your costs, you can decide if there is a cheaper alternative to your fixed costs and if you really need to keep all your variable costs.

Step #2. Increase your knowledge about investments.

Although advertising by brokerages might give you the impression that all you need to do well is to find the right adviser, it's not that simple. If you only rely on the financial expertise of others, you will have no idea whether you are paying too much in fees or buying the best investments. However, even if you are fortunate enough to find a good broker, then you are completely dependent on them as your source of wealth. It’s much better to become an expert in your own right and to ask brokers to give you a second opinion and facilitate your transactions.

The reason why some investors become really wealthy is that they are in charge of their own investments. They know what they are doing because they have a deep understanding of investment vehicles and the markets.

Step #3. Increase your experience with investments.

Once you have acquired a sufficient amount of knowledge with investing, you need to gain experience. Theoretical assumptions rarely match reality. When you begin, start small. If, for example, you are investing in the stock market, start with paper trading; or, if you are investing in real estate, buy a small property before increasing the size of your purchases.

In closing, set goals. If you have clear, written goals, follow these 3 steps, and choose to learn from your mistakes, you will achieve your goals of financial independence and follow your dreams.


2 responses to “How To Start Investing”

  1. Sean Green says:

    Great article. Thanks.

    Just one question, for the purpose of investment, which is a better vehicle for ones hard earned $, property or Options?

    • Martin says:

      This depends on capital demand and availability. To start investing in real estate you need a lot larger capital than starting with options. Also it depends on how much effort you are willing to put into buying and managing a property in lieu of options. To me it is options definitely. If I ever invest into a property then it will be just a pure land or farmland with nothing on it. I do not want to deal with renters, background checks, evictions, and urge them to pay rent. So a farmland as a store of a value would be my choice.

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