How to start investing in 7 simple steps?

Here I will explain everything in seven simple steps. 

STEP 1

Before you even start investing you need to take care of your own personal Finances.

The easiest way is to sit down with a piece of paper and then put down all the fixed cost that you have every month such as:

1. Loans, 
2. Utilities, 
3. Rent, 
4. Food and living expenses, 
5. Kids tuition costs,
6. Subscriptions,
7. Transportation costs ( teavel passes or fuel), 
8. Alimony
9. Insurance. 

Then the next step is to include all the income that your household gets. When you lay your costs that are fixed together with your income, the average percentage of those costs should not exceed 60% of your income. 

What happens if my fixes costs are higher than 60%?

Well that's a situation that will require cutting some of your expenses. What I suggest is to attack the expenses that are the biggest and those can differ from household to household. In some cases the amount of loans that you have might be simply too big and the easiest solution is to pay them off if you can or to consolidate all your loans from various Banks into one loan with a smaller installment.

If on the other hand your loans are okay but your transportation costs plus insurances on your car or too high well just perhaps consider getting a cheaper car or simply start using public transport or your bike depending on how far it is to get to work.

Sometimes simply rent might be too expensive and in this case the only thing you can do is to move out of town to the suburbs but then you'll have to get up earlier to get to work on time or simply get a smaller apartment in a cheaper neighborhood.

Some households overpay for their kids tuition costs and of course education is always the best investment but if those costs are too high you might as well consider homeschooling if you don't trust the public educational system. 

You could always think about getting some side hassle or an extra job.

If everything above still seems to be impossible to implement in your case I suggest following Ramit Seithi. He is the best financial coach for couples and he gets to the deep mindset about finances that have been possibly picked up since early childhood.

STEP 2

Create a rainy day fund which should not exceed more than 6 months of your fixed monthly costs. 

It is important to have some cash aside in case you get sick or you lose your job. 

Now you have to honestly count how much you are spending every month and then you just have to multiply the number by 6. It's as simple as that. 

And please remember the money for your rainy day fund is money in case something bad happens to you and this money is not going to be used for investing. In other words if you will need money you will not take them from the Investment Portfolio but from your rainy day Fund. 

For your comfort you could save even more money for your rainy day fund but having too much cash is not the best idea especially if we consider a 7% inflation. Even if you get a 5% interest from your bank you are still negative 2% versus the inflation. 

STEP 3

Start saving at least 10% of your income. 

But please remember the younger you are the less you have to save so it really depends on your situation. As an example if u are in your early 20s saving even $100 per month until retirement at 67, with a 10.5% p.a. return on investment will turn into $1.510.524,57. If you saved for 3 years longer until 70 then your portfolio will easily turn to over $2 million. 

STEP 4

First start by investing in ETFs that follow the major indexes such as SPY or QQQ. These ETFs will expose you to volatility which you are going to use to your advantage. The best way to do that is if you dollar cost average every week or even every month into these ETFs. Always leave some cash aside in case the market tanks and take advantage of any crash. Warren Buffett said "when everyone is fearful be greedy and when everyone is greedy be fearful". You should remember these words by heart. Write them somewhere where you will be able to see them every day. From now on you are going to change your mindset and whenever there is going to be a discount of the stock market you are going to take advantage of that disscount. 

STEP 5

Education is the best investment. Start educating yourself about technical and fundamental analisis of specific companies, about gold and about bonds. 

When buying a stock don't treat it as a ticker symbol. Treat your investment as a company that you would like to own for the long term. If the company goes down 50% and if the company's fundamentals have not changed then you simply dollar cost average down to make the average cost of your investment lower. 

STEP 6

Create a simple set of rules on a piece of paper that you will follow. 

One of the rules should be "Stop treating the stock market as a Cassino" . Try to change your mindset to become contrarian. In other words when people are FOMOing in you get out of your investment. On the other hand if people FOMO out then you start thinking of getting in but slowly little by little you have to dollar cost average down. 

The second most important rule which you should write is " rule number 1 never lose money, rule number 2 never forget rule number 1"- Warren Buffet. 

STEP 7

Step up the game and start earning more money by working harder or by having a side hustle or by selling things you don't need and put more money into your Investment Portfolio. 

Now you are ready to take the FIRE investing portfolio to the next level.