So you’ve been working for some years now and have done well to heed your parents’ advice to save for a rainy day. But perhaps you’ve also come to realise that you know how to save money, but not exactly how to multiply it.
Saving money and investing it are actually closely connected. And like saving, investing is a marathon, not a sprint. This life-long skill takes time and patience to harness so the sooner you start, the better you get.
Before you start looking at investment options such as stocks or unit trusts, you’ll want to address two important questions:
- Should you invest or pay off your loans?
Your first instinct may be to eliminate all your debt first. However, you should look at the interest rate on your loans and the potential profit you can earn from investments. If your interest rate is higher, it’s probably best to focus on managing your debt for now. But if your interest rate is much lower, it makes sense to begin investing before your debt is paid off since you have the potential to earn much more in return.
- Do you have an emergency fund?
One rule of thumb is to set aside at least six to eight months of living expenses to prepare for any unforeseen circumstances. Since investments are for building wealth or long-term savings goals, do not invest with your emergency fund.
Now that you know you’re in good financial shape, here’s what you need to know before considering the type of investment you want to venture into.