Key Takeaways

• To work out how much money you have available for investment, you need to gather basic information about your current financial situation and keep close track of income and expenditures.

• Set goals and develop detailed plans to help you stay on the right path of your investment journey.

• Establishing an emergency or rainy day fund must be a priority before you start investing.

To help you better prepare and potentially help reduce your risk, here are three things to do before investing.

Know your current financial situation

You should not consider investing if doing so means risking the clothes off your back or the roof over your head. The money you use to invest should never come from the pot earmarked for mortgage payments or other essential household bills.

Before researching your investment strategy, it's essential to gather basic information about your financial situation. You can never take a journey without knowing where you're starting from, and a journey to financial security is no different. 

You need to figure out on paper your current situation - what you own and what you owe. You may create a "net worth statement." On one side of the page, list what you own. These are your "assets." And on the other side, list what you owe to others, including "which are" your "liabilities" or debts. 

Subtract your liabilities from your assets. If your assets are greater than your liabilities, you have a "positive" net worth. If not, you have a "negative" net worth. You should update your "net worth statement" annually to keep track of your situation. Don't be discouraged if you have a negative net worth. If you follow your plan to get into a positive net-worth position, you're doing the right thing.

By keeping close track of your income and expenditures, you can work out how much money you have available for investment - both initially and on an ongoing basis.

Start by listing your income, including your salary, freelance fees, income from existing investments, interest on savings, grants, pensions, benefits, and any financial support that relatives might provide. Make a note of when you receive this income and whether this is weekly, monthly, quarterly, or annually.

Your next step should be to check and identify your spending patterns over several months, telling you where you can cut down on your spending to save more for your investments.

Set investment goals and make plans

When you first start your investment journey, it is vital to set your goals. Everyone has different plans, so you should determine what yours are.  

What are the things you want to save for?

• A home

• A car

• Education

• A comfortable retirement

• Your children

• Medical or other emergencies

• A period of unemployment

• Caring for your parents

Make your list, and then think about which goals are the most important to you. 

Decide how many years you have to meet each specific goal, and then find savings or investment options that fit your time frame for achieving each goal.

The financial planning process isn't just a one-time thing. Ongoing financial planning aids you in adapting to any changes in your financial situation as life moves on. So, there is a need to revise and review your financial plan periodically, such as every six or twelve months, which will help you stay on the right path of your investment journey.

Establish and maintain an emergency fund

Establishing an emergency or rainy day fund must be a priority before you start investing.

Life doesn't always go the way we want. Therefore, you should have separate savings immediately available to pay unexpected bills for emergencies, such as a sudden job loss.

Some people will save up to six months of their income to ensure that they can use the money when they need it.