Many new investors make the mistake of thinking that they should invest all or a large percentage of their savings. This is a common misconception that new investors should avoid falling under. To invest wisely you should determine how much you can really afford to put into your investments as well as clearly map out what your financial goals are for the short term as well as long term. The remainder of this article provides a blueprint for determining how much you can actually afford to spend on investments.
If you are planning on using your savings to begin making investments you should proceed carefully. Leave at least six months of living expenses in your savings account and do not use this money to make investments. Avoid borrowing money for investment and do not dip into your emergency savings fund to make any investment. Leave yourself a cushion to fall back on in case there are fluctuations in whatever market you may be investing in.
Depending on your individual financial situation you may find that you do not have at least six months of living expenses in savings. If this is the case you may wish to reconsider investing until you do so. Do not be discouraged if the amount that you have to invest is less than you wish after deducting your six month cushion, quite often investments can be made for much less than you expect. Speak to your financial adviser about options available to you for low cost investments. If you have a surplus of capital after deducting six months of expenses then calculate those funds and set them aside for investment purposes.
Now you can be begin to think about the purpose of your investments. Are they short term or long term, do you seek capital growth or a high rate of return? Developing an investment plan early on can save you hassles later on. Spend time outlining a budget for you investments as well as clear ideas of goals as well as time frames for reaching those investment goals. Sort your plan by month year and longer terms if this is part of your overall goal.
Start talking to a qualified and professional financial planner or investment adviser about the option available to you and develop a budget for your investments. There are a wide range of investment options available today and each carry their own individual risks, rewards, funding requirements, legal and technical issues. Discuss these issues with your financial planner.