Everything You Need to Know to Start Investing Without Draining Your Wallet

Everything You Need to Know to Start Investing Without Draining Your Wallet

When you make your first money from your small business, you’re on cloud nine, and rightly so! Having helped hundreds of entrepreneurs manage their money and achieve financial freedom over the years, that feeling is so familiar to me. 

And then comes the BIG question that gets the wheels in your mind turning

What will you do with this money?

  • Will you invest it back in your business?
  • Will you pay yourself a salary?
  • Will you start an emergency fund?  
  • Or… Will you invest it in the *huge gasp* stock market? 

If you’re new to investing in the stock market and nothing about it makes any sense to you, relax! My friend Will Steiner, financial education specialist and CEO of Big Later, a start-up that teaches people how to invest, gave my Master Your Finances students a rundown on investing 101.

Here’s what you need to know according to Will to start investing without draining your wallet!

What’s the stock market and why do companies go public?

Let’s start from the beginning. Do the words “stock market” bring to mind a bunch of guys in pinstripe suits yelling sell and buy orders in Wall Street? 

Weeeeeell, you’re close but not exactly.   

The stock market is the place where you can invest in publicly traded companies

This means anyone can invest and you don’t need to have bucketloads of money to do so. You can start with a relatively small amount of money and watch it grow bit by bit if you’re in for the long term. 

You’ll want to invest in publicly traded companies, that allow the general public to own their shares, as opposed to private companies, in which only accredited investors that have had an income of over 200K in the previous two years or over a million in assets can invest. Sorry! 

You might be wondering right now WHY companies go public.

Simple! Because they want to raise TONS of money through an Initial Public Offering (IPO), in which they turn from private to public companies, as people can go and start buying their shares in the stock market.  

And guess what! You don’t have to buy whole shares if you can’t afford to, but you can buy fractional shares instead, that is a fraction of a whole share and not all of it. This way you can access the stock market AND take your first baby steps in investing without breaking the bank.

And keep in mind that publicly traded companies’ financials are available to the general public and their stock price more or less reflects the company’s financial health. So you can rest assured that you’re treading safely into your investing journey. 

In compound interest we trust

Investing in the stock market means that you get to reap the benefits of compounding.

And what’s compounding, you ask?

It’s when the interest you gain on your investment is reinvested, resulting in you earning more interest. How cool is that?

But this won’t happen overnight. It takes time and patience because you’ll start getting real value and growth after a decade, so it (literally) pays to start investing as young as possible.

Investor psychology is where it’s at!

Psychology in investing is pretty important, in the sense that our brain tends to sabotage our investing success.

As human beings, we’re hardwired to look for instant gratification and we’re prone to loss aversion. In plain English, we’re affected more by losses than gains.

And that explains our tendency to panic and sell when we see a stock price going down when in reality we should be doing nothing but hold on to our stocks.

Remember, Wall Street makes good money every time you transact in the stock market. So pushing you to act when the going gets tough benefits them heaps.     

Try to change your mindset and start noticing those trends. Resist the urge to sell your stocks when the price takes a nosedive. Over the course of time, you’ll come to realize that you actually earned MORE money and got delayed gratification.

Think about your retirement

You might think you’re too young or too old to start thinking about your retirement expenses but nothing could be further from the truth.

Calculate your retirement expenses based on the lifestyle you want to have. Take into account stuff like inflation (add a small buffer to your number), longevity (women tend to live longer than men) and work toward your goal number. Then split it by the number of expectant retirement years and there you have it!

Use a compounding calculator on the Internet that’ll help you estimate the right amount for you. 

Know what you can REALLY afford to invest and don’t forget fees and taxes!

Each person is different and this applies to investing as well.   

If you’re a millennial starting out in investing, begin with a smaller amount and increase it with time. Don’t take out such a large chunk from your income that will leave your bills unpaid! JUST.DON’T! 

Will cannot stress enough that you need to invest for the long run.

Come up with a long-term strategy and buy stocks of companies whose financial statements look great – do your research!

It’s a good idea to include in your portfolio index funds (they’re basically a basket of stocks that tracks an index like S&P 500) and Exchange Traded Funds (EFTs) (they are similar to index funds but they trade a little more like stocks) so that you don’t worry about them too much and you don’t care if they go down by 20% tomorrow.   

Don’t fall into the trap of the scaling property of randomness, as Will calls it, where you check prices every day and you’re forced to make multiple decisions that don’t let you enjoy the long-term gains of the stock market.  

Don’t forget that investing has tax implications. Although investing has become easier these days, before you open that investing account, get informed about the tax difference between a regular taxable account and a retirement account, such as a 401K.  

Make sure to opt for a low-cost investment that will keep payable fees to a minimum and avoid any nasty surprises.

You may feel tempted to try and make money as quickly as possible, which makes you a trader, by the way, and not an investor. 

Be careful though! If you’re looking for a short-term profit, bear in mind that you need to have a solid strategy in place, otherwise you’ll get burned.

Oh, and don’t forget that you maaaaay lose money in the beginning before you start making some. Yes, my friend, playing around in the stock market can be harsh on your pocket. So invest responsibly!

Don’t neglect your emergency fund

Before you consider investing in the stock market, take a long hard look at your finances.

Have you set up an emergency fund?

If not, make that your priority – it’ll help you sleep more easily at night.

Life can sneak up on you every once in a while, so be prepared by setting aside savings for three to six months.

BONUS: Investing in cryptocurrency

Do you get excited when Bitcoin ticks up? Do you want to know more about Ethereum and Dogecoin?

Awesome! Will gave me and my students his two cents on investing in cryptocurrency. 

He says that cryptocurrency works like a hedge against inflation and is a scarce asset. “Think of cryptocurrency versus cash, and not versus stocks”, he told me. Investing your money in cryptocurrency may be risky but it won’t lose its value. 

But this isn’t a get-rich-quick scheme. Cryptocurrency is a tricky volatile asset and can cause you to lose money, at least at first, before you start seeing gains.

So, how did you like the tidbits Will shared with us on investing in the stock market?

Interested in learning more about other financial topics?

Then I’ll be waiting for you inside my Master Your Finances course and our private Facebook group, where you’ll learn tons about accounting, bookkeeping, and finance from more experts like Will.

See you on the other side!


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