Things You Should Do Before Investing in the Stock Market

1. Be debt free

Being debt free is an essential factor when it comes to investing in the stock market. Let’s say you have been working for five years now you are still paying back your student loans. Apart from that, you are paying your mortgage for your new house and also, your credit card debt. Being on this situation means that you have been using money that wasn’t yours. And spending money while owing money makes investing in the stock market a risky move. Remember that in the stock market you have assets, not cash. So, if you need the money fast, you should not be counting on the money you have on the stock market. Stocks are assets, not cash, and to succeed in your investment; you need to plan great strategies for decision making such as buying or selling. This is why you should invest money you can afford to lose.

2. Have an emergency fund

An emergency fund is vital to have before investing, as the first statement, you can’t count on the stocks to pay for your obligations, at least not while you are investing. For this situation, you should have an emergency fund. This emergency fund should be created for a what-if situation. So, what if you get into a car accident? What if you lose your job? What if you need to ask for maternity leave? The purpose of this fund is to be able to pay your expenses for at least four or six months in a situation where you do not have any income. Remember there is no excuse to stop paying things like rent, insurance, utilities, loans or mortgages. Thru having an emergency fund, you will be able to pay your obligations in case of any inconvenience which will prevent you from making a crazy move in the stock market.

3. Set financial goals

Since you will invest a remarkable amount of money your ability to make decisions will probably be affected by the feeling that you are losing money. Something essential to have into consideration is that the stock market fluctuates a lot and the solution to the fear of losing it all is to set financial goals. What I mean by this is that you need to pay attention to the bigger picture. For this, you will have to look at your percentage of return rather than the amount of money you are making. For instance, let’s say you bought a stock for $1 USD a share and sold it at $2 USD a share. In this case, you are making a return of 100%. The person that buys these shares from you needs to sell it at $4 USD to make the same return on investment (ROI). So, don’t stress over the fact that you could have had higher earnings, many people lose significant amounts of money for being too greedy.

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