The most frequent question that I get is, "When should I start investing?" My typical answer is, "Now!" However, perhaps I should offer a bit more guidance than a simply one-word answer to help you to prepare to start investing.
In the opening of my book, "The Confident Investor", I actually tell some people to put the book back on the shelf. These are people that are not ready to start investing any money. The people that are not ready to start investing yet are people that say the following:
- I cannot give 10% of my money to my fellow man simply because money is too tight and I can't make ends meet.
- I cannot put 10% of my money into the bank before I pay any bills simply because I spend every dime that I make to make ends meet.
- I cannot save 6 months of my income into an emergency fund because I need all the money I can spare to survive.
In general, the reason that people cannot (or will not) do the above three things is because they have not prioritized their life correctly. Everyone can live on 80% of their income. If you are living in the United States or Canada (which covers 98% of those that read this site), you have more than enough wealth to live on 80% of your income. People all over the world are forced to survive on much less than you are making - they would be thrilled to live on your 80%. As an old friend of mine used to say, "If I had all of your money, I wouldn't need mine."
There are a few more things to consider before you start investing
You have realistic expectations about investing
It’s quite sad how many people I come across with insanely unrealistic expectations about investing. In fact, it appears this describes a sizable minority of the general public. Why else would the “earn 20% per month investing in xyz” scams be so prevalent? Somebody must be buying into those pitches. If it sounds too good to be true, it probably is. You aren’t going to earn more than 20% per year with a properly diversified portfolio. You’re just not. If you’re expecting more than that, you probably shouldn’t be investing because odds are good you’ll fall victim to a scam and lose all your money eventually.
You understand the basics
I don’t care if you aren’t interested in investing. You probably aren’t all that interested in brushing your teeth or flossing either, but you do it. Why? Because it’s good for you. It’s just something you have to do. It’s the same with learning about personal finance. Not being interested isn’t an excuse. There are probably a thousand good personal finance blogs on the internet (I consider mine to be among the best), tons of good books on the subject (once again, I cannot think of a better one than my own, "The Confident Investor"), and you can always watch Jim Cramer on Mad Money to get a bit more perspective. The information is out there and investing isn’t difficult. Just do it. Start investing NOW!