Do you know that of the first ten people who made it to Forbes World’s Billionaires List, only three didn’t have to do anything with tech? Of these three, only one made incredible wealth from investing: Warren Buffett.
Buffett is currently the CEO and chairman of Berkshire Hathaway, a holding company that owns some of the most popular brands, such as Geico and Fruit of the Loom.
The smart investor also started his conglomerate when he bought it in 1965 and then made it his passion for diversifying his portfolio by buying businesses in various industries and improving their financial position.
Now, it may take a while before you can reach Buffett’s status. He already bought his first stock at 11 and became a millionaire before he hit 35 by investing in a hedge fund.
However, you can be just as wise as him and work your way toward financial freedom and greater wealth. You can begin by knowing if you’re ready to invest. Here are the four signs to watch out for:
1. Your Debt Is Under Control
Currently, you live in a country where debt matters if you want to build your credit score and access more favorable loans such as auto and mortgage. But that doesn’t mean you can let these repayments pile up.
Experts say that a person’s total debts without a mortgage should not exceed 10 to 15 percent of their take-home pay (income after deducting taxes and contributions). Otherwise, you need to tackle your financial obligations before you consider investing for one reason: the interest will only gobble up your earnings.
Fortunately, you can consider different ways to manage or remove some of your debts. Dave Ramsey is famous for teaching the debt snowball method to start getting rid of the smaller loans first.
Since they’re easier to eliminate, you may feel more motivated to deal with the rest. Moreover, you can now have extra cash to pay for the bigger ones.
You can also think about refinancing if the interest rates are low, consolidating debt to make it more convenient to track and pay, or even restructure the payment plan when money is tight.
2. You Have Enough Emergency Fund
Although investments can generate high returns, they can also be risky. When the market isn’t good or you’ve made wrong decisions, you can lose a lot of money.
Moreover, not all portfolios are liquid, which means you cannot convert them easily into cash. A perfect example is real estate. Land and house can appreciate quickly, but if you need money and plan to sell these assets, it will take days or even months before you can realize it.
On the other hand, emergencies know no time. For this reason, after controlling your debt, build your emergency fund before you invest.
How much do you need for it? It depends on how much you can set aside. The general rule is that the emergency fund should be equal to three to six months’ worth of your living expenses.
3. You’re Ready to Learn about Various Types of Investments
Usually, when people think of investing, they go to the stock market, start a business, get a mutual fund, or even put their money on a time deposit. You will be glad to hear that the list of investment options is long. Even better, the available resources are increasing.
For those who want to be forex traders, some information includes its differences with other types of markets, the best currencies to invest in, and how to minimize the losses.
One can also generate passive income by taking advantage of government offerings. Sometimes they sell bonds, which are less risky than stocks, and they offer tax-friendly retirement accounts such as Roth and traditional IRA.
4. You Have a Better Grip of Your Emotions
You are ready to grow your wealth when you know what type of investor you are. For example, what kind of risk-taker are you: conservative, moderate, or aggressive? What is your risk appetite, or how much of the investment risk are you willing to take or tolerate? These questions can help you narrow down the various investing options.
Most of all, you are likely suited to become an investor now when you can control your emotions. Else, your impulse, obsession, anger, and frustration can lead to poorer decisions that will only make you lose more money.
Investing offers many benefits: it can help appreciate capital, secure your retirement, fund big projects, and let you earn passive income. But it works only when you’re truly ready.
