November 7, 2024

Investing is a major part of building wealth and achieving a bulletproof life that is secure from failure and setbacks. Investing allows you to live your dream life. But there are some things you need to do before investing. A well-planned investment process not only frees you of any investment worries in the near or distant future but it also helps you attain those investment goals. Build an Emergency Fund. Your emergency pot is the savings that will be there for you when you have emergencies or when something in life happens that you are not expecting or planning for. Like when your boiler packs up or when your car develops a fault. These emergencies need to be taken care of, and that is where your emergency fund comes in. If you start investing without an emergency fund, you may get into debt when emergencies happen. You may also find yourself using up your savings or running a helter-skelter looking for where to borrow money. Another emergency that can happen is losing your job; this is an emergency you do not plan, but when it happens, you need to have funds to deal with it. How much should you have in your emergency fund? Some say six months, while Dave Ramsey says a monthly income at the minimum. However, You can save up to six months of your income, but you need to start with three months. An emergency fund is one thing you should have before you start investing at all. Pay Off High-Interest Debt. When you invest, you aim to make returns. High investments pay between 1 -200% of your money, but a lot of investments usually pay less than 20% in the first year. Some even pay as low as 3 to 5% in the first year of investing before compound interest kicks; that is why you need to pay off high-interest debt first. Any debt with an interest rate of over 10% per annum is a high-interest debt and would take more from you than any investment would give you that year. So, focus on paying off this debt first. Besides, what is the point of investing if your high-interest debt is going to take more than your interest returns? Start Paying Other Debts. I am not about living a debt-full life but a debt-free life. Arrange a process for paying off all other debt; set up a monthly payment to your lenders, negotiate your payment options, and arrange a payment plan. You also need to be aware of your pay-off date, that is when you are likely to be debt-free from each particular debt you have. Put the Right Insurance in Place. Many of us ignore insurance because we do not believe in it or simply do not care about it. We think it does not matter, while in fact, it does. Life insurance is one of the most important insurances to get, especially if you have children. You do not want them hanging around without any ray of hope if something suddenly happens to you. Another insurance I usually advise people to have is home insurance, especially for home property owners. If anything happens to your property, you can rely on your insurance. Some home insurance even has boiler coverage. If your house gets burgled your home insurance should cover it, depending on your insurance plan. Health insurance is the third insurance that I always preach about. In the UK, NHS is fantastic because it gets things done for us; you can see your GP anytime and can check into the hospital anytime. Having health insurance is sometimes the difference between an early diagnosis and a late diagnosis of a life-threatening condition. The NHS is quite burdened because of the queues and waiting time, so I advise that you go the extra step of getting health insurance, especially if you are over forty. Make Retirement Plans. Do you have a pension? Have you put one in place? Are you part of your organization’s pension program? If the answer to these questions is a no, you need to get proactive about your retirement. The truth is that because of medical advancement, a lot of us are going to be around for a very long time. So when we retire at age 60 or 65 without any financial plan, what would you fall back on? How will you survive beyond that age? If you do not have a plan, see how you can join your organization’s pension program. If you are self-employed, get private pensions. In the UK, we have the self-invested pension program (SIPP), which you can join through investment platforms. Know Your Cash Flow. You need to know how much money you earn monthly/weekly and how much of that income is spent on your bills, expenses, and debt. To know your cash flow, you need to have a budget. Start budgeting your money, tracking your expenses, and understanding your cash flow; this helps you know how much you have to invest. Investing is not a one-off thing but one you need to do consistently and repeatedly, which requires you to know your cash flow. Understanding your cash flow gives you an idea of how much you can spare monthly for investment? Know Your Investment Goals. You need to ask yourself why you want to invest, how long you want to invest, and what you expect to get out of the investment. It is very important to sit down with yourself and have this conversation so you can get the answer to these questions. Understanding what your investment goals are is one thing you should do before investing. Educate Yourself. Before you start investing, you need to educate yourself. Do your research. Know the investment instrument and platforms available. Read about the fees, tax implications, and pros and cons. You can educate yourself by watching videos like those on my Youtube channel, reading personal finance books, or attending one-on-one coaching sessions with certified finance

A thousand pounds may not seem like much, but you have been disciplined enough to save it, and now you are ready to invest. I applaud you for that! Your £1,000 is a fantastic start in building toward long-term financial freedom. If you are unsure how to invest your first £1000, this post is for you. Today I will share how I would invest my first £1000 if I were in your shoes. But before then, let’s discuss your investment goals and risk appetite. Identify your Investment Goal Before starting your investment journey, it is essential to identify your investment goals. The first questions you want to ask yourself to identify your investment goals are as follows: Why do I want to invest the money, and what do I want to achieve with the money? Am I looking to get something back in terms of income from this £1000, or am I looking to grow wealth for the future? Is it the beginning of my investing journey? Am I going to be adding more to it so that I can grow wealth? Is this towards my pension and retirement? These questions would help you to identify your investment goals. Know Your Risk Appetite You would also consider if you like low-risk, medium-risk, or high-risk investments. For example, If the £1000 reduces in value which can happen with investments, would you be crying and depressed? If the answer is yes, then you have a low-risk appetite. For medium-risk appetite persons, you are somewhere in the middle. You have the mindset that even if you lose a little bit of the £1000, it is not the end of the world; yet you would rather not lose everything. You would like to make some decent returns on your £1000. On the other hand, high-risk persons do not care much if they lose money. They believe that even if they lose it, they can make another one again. Therefore, they look for high-risk investments that can make higher returns in a short time. Once you know your investment goals and risk appetite, it is time to start investing. So if I were in your shoes, how would I be investing my first £1000? Take a look at these scenarios.   Scenario 1: Low-risk appetite with an Investment goal to grow wealth In this case, I would put 70% of the money into bonds and 30% into funds. So out of the 70% for bonds which is £700, £500 will go into government bonds, and the remaining £200 will go into corporate bonds. Government bonds in the UK are called Gilts. It means you are loaning money out to the UK government. It is a safe investment because you will not likely lose your money. You can buy gilts on many government platforms in the UK like Vanguard, Hargreaves Lansdown, AJ Bell Youinvest, etc. Then I would put the remaining £300 into ETFs (Exchange Traded Funds). ETFs are funds traded on the stock exchange, allowing you to invest in various companies. Investing in ETFs helps you to spread your risk. I will go for an Exchange Traded Fund that tracks a particular index like the FTSE 100 (an index in the UK that follows the top 100 companies operating in the UK). I could also go for an ETF that tracks the S&P 500 (an index that tracks the top 500 companies in the UK).   Scenario 2: Medium-risk appetite looking to grow wealth In this scenario, I would put £500 of that £1000 into bonds and the remaining £500 into funds. While putting my money into funds, I would ensure some goes into Exchange-traded funds and some into mutual funds. Mutual funds are not traded on the stock exchange. Still, they are also funds like ETFs that allow you to invest across different companies. So I will put £200 in mutual funds, and £300 will go to ETFs. Out of the £500 allocated to bonds, I would put £300 into corporate bonds and £200 into government bonds.   Scenario 3: High-risk appetite looking to grow wealth In this case, I will put 80% of my money into funds and 20% into bonds. So for the 80% allocated to funds, I will put £600 into mutual funds, and £200 will go into ETFs. Then I will put the remaining last £200 into corporate bonds.   Scenario 4: Pension goals Suppose my investment goals are majorly for retirement purposes. In that case, I will put all £1000 into investments via my Self-Invested Personal Pension (SIPP) account so that the money will no longer be accessible to me. The money will always remain in my pension account even if I sell the investment. The Self-Invested Personal Pension (SIPP) account is the best if you want to invest your first £1000 into a paper investment to prepare for your pension years.   Photo by Edu Carvalho on Pexels.com While investing towards retirement, do not forget to follow still the low-risk, medium-risk, and high-risk appetite theories.   About stocks and shares… You may be wondering why I have not mentioned stocks and shares. Well, the answer is simple. £1000 is not a lot of money; if I had to put that money into individual companies, one or two companies would wipe away all of my money. For instance, Amazon shares are going for over €3000 while Tesla shares are over €600. So investing my £1000 in these companies will either mean I won’t be able to buy any shares at all or end up with one or two units of shares. However, If I do it through funds, I can spread myself across different shocks and shares, thereby reducing my risk exposure. And that is why I have chosen to only invest in funds and bonds. I hope I have given you an insight into how you can invest your first £1000. It doesn’t even have to be your first £1000. It could just be the £1000 you