Here it is! here is the day when you finally realized that your growing ambitions do not fit into your financial situations and decided to take a first step towards establishing a passive income source. Beginning is the most difficult part, and the question you probably ask yourself is “what should I start with? what are my further actions?”
Step one is setting long-term goal: As a person who has come through the same time I could advise you to begin with clarifying your primary long-term goals, because this is what determines the time horizon and, thereafter, your preferable investment strategy. Are you planning to buy a house in five years or dreaming about a residual income after retirement? Whatever your goal is it must be completely clear before you enter into a new venture, since nothing enhances tolerance to the market fluctuations as much as clear understanding of what you are doing and why.
Step two is evaluation of your net worth. In other words, appropriate sizing the portion of funds designated for your future wealth requires accurate analysis of your disposable assets as well as current liabilities. The conductive and, perhaps, the only appropriate situation for investing money is when the integrated cost of your assets, such as cars and property, exceeds the integrated cost of financial obligations imposed on you. As bigger the difference in a favor of assets, as lower the probability of unexpected withdrawals from the growing funds.
Step three is patching holes in the budget. When the picture of your current financial disposition is more or less clear it is time to generate liquid cash for investments. There are two ways to do so – to work more and harder or to save existing money from funneling. Let’s take the easiest way. Nowadays it is hard to find anyone who is completely free of debts. Presence of debts not only nullifies the return rate but also holds portions of liquid cash back from infusing it into new investments. Thus, before you put your money into a risky fund it would be smarter to patch the holes that suck out more money from your pocket than any successful investment can generate; it includes paying off credit cards, microloans and other financial obligations with high interest.
Step four is forming of a reserve fund. The good news – those black holes are obvious troubles that we can indicate and take under control. The bad news – life is a tricky thing and sometimes it gives us surprises we do not count on. Exploded car wheel, flooded apartment, a parking ticket and many other unexpected expenses may undermine financial stability. In order to protect your investments from unpredicted withdrawals it is smart to allocate a small portion of your funds in a separate account which you have easy access to. This sort of universal insurance makes your financial planning more effective and less dependent on external threats.
Step five is establishing and following right habits. After leakages are eliminated and the safe buffer is set, it is time to make ourselves more efficient human beings. As one wise man said: “watch your habits, they become character; watch your character, for it becomes your destiny.” As our destiny is to become rich and happy, we need to establish habits that will lead us to wealth and happiness. The most important habit in our case is unnecessary purchases. Think about what you like to do, what makes you happy and what you cannot live without. Is it mountain biking? Nice! Is it painting? Good! Expenses related to those things may remain untouched. However, are you really in love with each and every pair of shoes in your storeroom, or with a glass of beer you drank on the way to home after work? If not, it is time to stop spending money on this, since every penny converted into garbage is gone to generate money for someone else’s dreams.
Step six is filtering of people you spend time with. Another wise man said “tell me who your friends are and I will tell you who you are.” Some impulses to waste mined by hard work cash come from our inner voice, some impulses come from other people’s voices. Although, we cannot run away from our own thought we still do not obligations to hang out with people whose company usually causes troubles and shame. If you see you do not enjoy your parties as back in the day it is time to grow up and change the circle of friends. Thanks to the progress nowadays we can find right people whose common interest through social networks. Check the list of local communities, their activities are usually less costly than average visit of a nightclub. Plus connections found in the communities generally bears more fruits.
Step seven is choosing appropriate instruments. Online market evolves and banking service evolves along with it. Modern technologies provide allow us to manage our finances through friendly designed web applications. They are friendly designed, easy to use and do not require us to spend our precious time on lining up in bank branches. Therefore, if you are serious about the intention to invest you should obtain an instrument to control your finances. Keep your mind open and do not be afraid to learn something new.
All in all, the greatest journeys started with a single step. And if you want to make your way to be rich, these are the simplest advises to give you the right direction.