The Most Important Thing To Know Before You Ever Start Investing

One Thing to Know Before You Invest

Paper Asset Investing Series: Post #2

This is post #2 in our paper asset investing series. We covered the basic terms of stock market investing in post #1, which you can check out right here: Top 5 Investing Terms to Help Beginner Investors Become Smarter Investors.

A lot of people try to begin investing with asking questions like, what should I invest in, how much should I invest, how do I even start investing. They want to know how much they should be saving every month or how to get the best return. They want to know which great stocks to purchase. They want to know which financial advice to take and who they should be working with. They try to get in the investing game without really having a purpose as to why they are in the game.

Before you ever start investing there’s one thing you must know in order to be successful at investing and that’s to know your purpose for investing. Knowing what to invest in and how to invest will become much clearer when you know your purpose for investing. The more clearly defined your purpose is the easier your investing plan will be.

Here’s 3 reasons why you must figure out your purpose for investing before you even begin.

Reason #1 – You won’t know how much to invest

If you’re not clear on your purpose for investing you won’t know how much you should be investing. If people have just told you to invest, but you haven’t clearly defined your investment purpose then you don’t know what you are working toward or how much it will take to get there.

You could be thinking you want to be able to travel the world when you’re older or have passive income, but if you’re not clear at what age you’d like to start traveling or how much passive income you’d like then you haven’t clearly defined your purpose.

Investing $5 every month may not be enough to help you reach your purpose for investing, but you’ll never know until you’ve defined your purpose.

When I wanted to buy my first home I knew approximately how much I’d need to invest for my down payment. I started saving for the purpose of investing in a home and since I clearly defined my purpose I was able to figure out how much I needed to be saving every month to reach my investment goal.

Making sure you have a clearly defined purpose for investing will make it a lot easier to know how much you should be investing every month.

Reason #2 – You won’t know the right investment platform to use

Not being clear on your purpose will make it difficult to choose a great investment platform for your money.

If you’re putting money into your 401k, but want to draw it out before retirement age then a 401k would not be the best investing platform to use.

Once you know your purpose you can choose the best investment tool that coincides with your purpose. You’ll know the timeframe you’ll want to be investing for so you can choose the best investment platform to reflect that timeframe.

If you want to invest in real estate you can invest your money in a short-term investing platform so you can pull your money out in, say a year or so to use for your down payment.

Knowing and clearly defining your purpose will help you choose the best investment platform.

Reason #3 – You could get charged fees

Yet another reason to have an investment purpose even before you start investing is to make sure you don’t have to spend any unexpected money on fees or even end up losing some or all of your money.

Like I mentioned above, if you are pulling money out of a 401k early you’ll be charged fees for that. We don’t want to be having any unnecessary expenses because that money could have gone toward your investment.

Also, you could be charged fees if you have to switch your money over to another investing platform or you could even lose that money if you can’t switch it over.

For example, over 5 years ago I decided to invest in life insurance. I wanted to be diversifying my portfolio (basically investing in different things in case one investment didn’t perform so well).

I decided to purchase whole life insurance. My financial rep made it sound like a good investment for me, but I wasn’t really clear on the purpose for that investment. I just knew I needed to be investing my money.

I didn’t have any dependents so there was no one else that would be relying on that life insurance. A couple years after I signed up for the life insurance I felt like that really wasn’t the best way to invest my money so I decided to cancel my life insurance and start investing that money elsewhere.

I had to let go of thousands of dollars because I couldn’t roll it into something else, it was just something I had to accept as an expensive learning experience. I wasn’t clear on my purpose for investing that money.

It was an expensive lesson to learn and I want to help you avoid that. So be clear on your purpose for investing so you can avoid losing money outright or even in fees.

These are just a few reasons why having a clearly defined purpose for investing BEFORE you even start is so important.

Just to recap, remember to be clear on your purpose for investing so you can know how much to invest, where to invest and not be charged any extra fees for having to switch your investment over to another platform or even lose your entire investment.

I’d love to hear some of your purposes for investing. Share in the comments below!

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