What are your personal financial goals?
Wherever you are in life, investing probably should be among these goals, since it’s the best way to build and secure a sustainable future for yourself.
But there are so many things to know. How can you find money for investing? And what should you invest in? After all, isn’t investing risky, and something that only the rich can afford to do?
In this article, I’ll help explain why you should start investing, how you can find the funds for it, and what exactly should you be putting your money in.
Why should you invest at all?
You might be thinking “Well, I have a career and a reliable source of income, why should I bother investing at all?”.
To understand why you should bother investing and creating streams of passive income for yourself, you have to think about the things that most people would rather not think about.
Job loss. Your job might seem stable and your employers might seem reliable right now. But are they really? Think about the 2008 crisis when millions of people all over the world lost their jobs through no fault of their own. What happens if (or rather when) there is another economic downturn? Then there’s outsourcing. What if your employers decide that you and your colleagues simply aren’t worth the paycheck and decide to hire rising talent. Moreover, there’s the technology to worry about, because AI might soon take your place! It might sound silly, but it’s true! As Martin Ford points out in his book The Rise of Robots, robots are not only good at replacing people who are flipping burgers, they are also coming for the white collar jobs as well. Are you sure you are that irreplaceable? You need to be prepared for a case of job loss even if that kind of a situation seems very unlikely to happen. And the best way to prepare for it is to create a stream of income that is independent of your job!
Illness. You never know when an illness might render you unable to work. Sure, you might be young and healthy now, but who knows what the future might bring? How long would your savings last in an unfortunate situation like this? Probably not long enough. This is another reason why it’s so important to have a source of passive income that would continue coming in even in a case where you can’t work anymore.
Old age. In the modern world, the vast majority of us are pretty much guaranteed to live until we are really old. That time of your old age might still be decades away, but in reality, time flies, and you will be old before you know it. So how do you want your golden years to look like? We all imagine contently sitting by the fireplace and playing with our grandchildren. However, the reality for old people is often much more dire, because they have to take a huge cut in income once they retire. Are you ready to reduce your living standards in the final stage of your life? Most people aren’t and are shocked by the situation they find themselves in during their golden years. That’s yet another reason for investing and creating income streams that can supplement your pension once you retire.
I know. It’s very unpleasant to think about these things. But it’s better to think things through and be prepared for the worst-case scenarios than to not have a care in the world and then be taken by surprise when things go wrong. And one of the best ways to prepare for things going wrong in life is having multiple sources of income (especially passive income).
Where to find money for investing?
Okay, so now you understand that you need to start investing, but that is easier said than done, isn’t it? Millennials are often made fun of for still living with their parents and working at a coffee shop, but the reality is that they graduated right into the Great Recession, and still recovering from that. And it’s not only the Millennials that are struggling. So how can you find money for investing when you are already pinching cent coins?
Figure out where your money is going at the moment. Do you know where your money is going? If you are like most people, you probably don’t. The solution to that is to start tracking all your expenses. And by all, I really do mean all, down to a 50 cent pack of chewing gum. That might seem excessive, but it’s the kind of discipline you need to get your finances in order. You can use Excel or various apps for this. That way, the reality of your spending habits will really sink in, and you’ll be more likely to find some fat to trim.
Decide what you should be doing with your money instead. Once you know where your money is going at the moment, it’s time to decide where it should be going instead. Eric Ravenscraft, the author of How to Start Managing Your Money, For Those Who Never Learned Growing Up, recommends spending 50%-60% of your income on fixed costs (various bills), leaving 20%-35% for guilt-free spending, setting 5%-10% aside for savings, and another 10% for investment. These are good guidelines although I personally think that there should be less guilt-free spending and more saving and investing (for example, I think that every time you buy a coffee, you should also set aside the same amount for investing). It’s up for you to decide!
Automate everything that can be automated. Willpower is a limited resource so you can’t expect to do everything right through sheer willpower alone. In fact, the best thing you can do for your finances is to take as many decisions out of your hands as possible and make it run on autopilot. So go to your bank and set up automatic payments for bills, savings, and investments.
With these three steps, you’ll be able to regain control of your finances and you’ll find money to set aside for investing even if you are on a tight budget at the moment.
What should you invest in?
Once you are ready to invest, you might be overwhelmed by all the options out there, and get stuck in analysis paralysis. What exactly should you put your money into?
In the past, businesses and individuals who needed loans or wanted to invest their money had to deal with banks and other traditional financial institutions to carry out these financial tasks. The process was slow, tedious, and somewhat draining. Nowadays the situation is different.
Have you heard of P2P financial tools?
P2P finance is a form of alternative finance and it is the most promising way of investment. Also, it might be a good fit for you. P2P (or peer-to-peer) finance can be described as connecting borrowers who are looking for loans with lenders who want to invest their money in those loans. Let’s start by defining what P2P finance is:
P2P lending (P2PL) refers to the process of financing (i.e. of the received loan application) which allows individuals to lend and borrow money without using a traditional financial institution (i.e., banks).
P2P investing (P2PI), on the other hand, can be defined as the process of investing your money to those who are requesting a loan.
The process of P2P investing is relatively simple. Once you’ve found a P2P lending platform you want to invest with, you sign up to become a loan lender - and decide how much money you wish to lend and for how long. You then add funds to your account and start investing in P2P loans.
You’ll probably agree that finding a reputable and trustworthy investment platform is on top of the priority list. While there are plenty of online investment sites out there, do your research before you commit to any of them.
The ideal company to invest money with should:
- Offer a high return on investment (ROI), obviously! You’re investing in P2P loans to make money after all. ROI varies with different companies, but look for something not lower than 10-12% (FAST INVEST offer up to 16%!);
- Make the process smooth, easy and quick with a user-friendly platform and an efficient financing system;
- Protect your money with a BuyBack guarantee and MoneyBack Guarantee (unexpected things happen, and your money should be accessible to you if they do!);
- Offer protection from late borrower repayments with a guarantee that if the borrower is late to make a payment, it’ll be covered by the company (e.g., MoneyBack Guarantee).
Many P2P companies tie up your funds for an agreed term. Make sure you are comfortable with not seeing your money for a couple of years before committing to such timescales.
Nevertheless, with alternative financing companies like FAST INVEST, a unique MoneyBack Guarantee allows you to stop investing any time. So, if your circumstances change, the investment will be offset from you in one day.
Make investing your priority!
Your future rests solely on your shoulders - if you don’t take action and do things that matter, no one else will do them for you.
This applies to investing, too. You need to get serious about it and start taking action steps towards making it a reality. No one will build your financial future for you!