Finally, I’m an official investor: having a brokerage account, choose stocks, bonds, and mutual funds for the purchase, tracking market situation, making investment decisions…
It took me more than 20 years to come to the point. The 20 years passed from the time when I first read about investment and wanted to do it to the time when I actually started to invest. Now, looking back I’m sure I could start much earlier…
My blockers
Looking back I clearly see 2 major blockers preventing me from starting earlier:
- My unstable financial situation (caused by bad financial decisions)
- My psychological insecurities (it took a lot of inner work to beat them)
I started to build my career a long time ago. As compensation grew, my (and my that time husband’s) expectations grew even faster: we wanted to live in a bigger house, we wanted to have a newer car. Bigger and newer than we can afford. But I’ve got the answer: I was making a career, and my solution to any overspend was “earn more”. I was trapped in a vicious circle with no way out…
It took me five years to understand what’s going on. By this time I spend more than 70% of my salary to pay off “bad debt”: pay more money on owning things that cost much less.
At the same time I was actively pushing out any idea of investment using a lot of excuses: there are no instruments for investment available, I don’t understand money, it will take a lot of time to understand, I’ll be bad at it, I can gamble out all my money away… Yes, they are excuses, and the root cause was in my insecurities: confusing net worth and self-worth… And having huge debt, a kid, and being on edge of divorce didn’t help either…
Path forward
For me path forward meant taking full control over my finance. It sounds pretty simple, but each step took years.
Step 1. Live below means
Now I know: whatever amount is on your paycheck, you can spend just a part of it. Yes, it’s hard. Moreover: it’s hard regardless of what amount is there. But it’s pretty much possible. Track all your expenses, divide them into fixed (must payed) and flexible (can be avoided), optimize the flexible part. In other words, create a budget and follow it. Put a goal not to spend a defined feasible amount per month. For somebody it will be $100, for others, it can be $10,000, the sum is not so important as limiting itself.
Step 2. Pay off bad debt
To explain my definition of bad debt it’s easier to explain what “good debt” means. In my opinion, good debt helps you to increase your assets or improve your lifestyle when your payoffs are lower than the alternative. For me now they are mortgage payment (the alternative is rent, which in most cases is worse), zero-interest car financing (the alternative is finance, rent, or lease which are worse), educational credit (getting a lower salary is worse). All other debt is bad, I had to pay it in full before moving forward.
Step 3.Create contingency buffer
I’m pretty sure if I would be a man, I would jump into investment as soon as I didn’t have a debt and had some money leftovers… But as I’m a woman, feeling secure is extremely important for me. So I took the time to save my contingency buffer. I feel safe when I have at least 3 of my monthly payments set aside. Tools are also important: I need my money with immediate access, but with a higher interest rate. Checking account is not an option: I found saving accounts with higher interest rates.
Step 4. Investing
Finally feeling secure I was ready for investing. I took time to learn instruments (trading application), methods (fundamental analysis), and rules (taxes, legal questions) and after that, I finally put my first purchase order on the market.
What I would do differently
As I mentioned, it took me years to get out of a bad financial situation and getting back on track. Having no debt, having extra money on regular basis, and having a contingency buffer were non-negotiable prerequisites for me to start thoughtful and successful investing. Somebody can note that I lost the years on my way to investing. I consider them very good spent time.
But there is still something I would do differently not to find myself in the situation I started my journey from. I wouldn’t let my unstable financial situation occur in the first turn:
- It’s possible to live below means with any income: start budgeting as soon as possible. Now when I give allowance to my 11-years-old kid, she distributes it into 3 buckets: to spend immediately, to save on something big, and to give away. I hope it will help her in the future to avoid my mistakes.
- Before taking any financial obligation, it must be assessed on future cost and urgency of purchase. Can it wait till enough money will be saved (i.e. a new car) or it’s better to get it as soon as possible (i.e. education)?
- It’s better to cultivate the feeling of abundance in any financial state rather than count on promotions. Let a promotion be a nice surprise, which helps you to contribute to saving even more, rather than a must-have in your financial plan.
- Create a security buffer as soon as you can and start investing. Learn, it’s easier than it seems. I wish I started 20 years ago.
Now I try to share my experience and lessons learned with my daughter. Whatever she would like to do in the future, these lessons learned are indeed universal.
Katty's Wallet 