What is investing and who can invest?

Finance lessons
6
-
4 min

Investing for the first time can feel daunting. Here are some things you need to consider before getting started.

  • An investment is a sum of money that is invested by a person or individual rather than a financial institution.
  • Create your budget
  • Create your financial goals
  • Review your household budget

In this lesson, you are going to learn about what you need to know before you start investing.

What is investing?

Investing is putting some of your (disposable) income or savings into assets like stocks, ETFs, gold or Bitcoin. The idea behind it is to secure your wealth and ideally end up with more money than you initially put in.

Your investment is yours to decide what to do with - from how much to how little you would like to invest. However, before you invest your money in any way, there are some things you should consider in any case.

Who can invest?

Technically, if you have a bank account, you can invest. However, most services that allow you to invest have a minimum age of 18 to be compliant with KYC requirements. Also, you need your parents’ permission in most countries if you are an age younger than 18. On the other hand, there is also no age from which onwards you are  “too old” to invest. As long as you invest steadily, wisely and keep as much money in your emergency fund as possible, you can still make a profitable income from investing. How you invest can depend on your age and financial situation as described in this article.

Create your budget

For a beginner to investing, the general rule of thumb is that you don’t invest any money that you cannot afford to lose. That is, don’t invest every last penny of your savings in the hope that you might see returns right away. On the contrary - never invest money in any way that would put your financial future at risk.

When starting out, make sure you have a personal budget in place where you know your assets and liabilities, that is, how much money you have coming in and how much you are spending. After you have calculated your disposable income (the money that is left over after paying for bills and necessities) you can think about how much of that sum you want to invest.

Basically you should feel that you have a good relationship with your finances before you start investing. Make sure you also don’t have any debt. Remember to keep enough cash in your emergency savings in order to achieve financial security. Creating a budget is so important for your personal finances, as it is essential for managing your money, your financial well-being and achieving your financial goals.

The general rule of thumb is that you don’t invest money that you can’t afford to lose.

Research before you invest

Before investing, take enough time to look at your finances, your assets and liabilities and figure out how much disposable income you are able to invest and what types of investing would be best for your personal needs.

Here are some things you need to be researching and thinking about:


What do I want to invest in?

You have a few options: bonds, stocks, real estate and digital assets are among the most popular ones. A part of your research must go into having a general understanding of the types of markets you want to invest in. Many beginners that start off with digital assets invest in well-known cryptocurrencies such as Bitcoin or Ethereum. Do your research on this, learn what kinds of things determine the price of an asset, and most importantly, how to keep your assets safe. Define for yourself how you feel about risk when investing, which brings us to the next topic: risk.

How do I feel about investment risk?

Your attitude towards risk depends on your personal situation. For example, younger people may be able to invest in assets that are considered higher risk than people who are near the age of retirement and are going to need the money from their investments when they are no longer in the workforce. The risks you want to take also depend on a lot of other factors and there is no one-size-fits-all solution. In lesson 17, we cover the biggest risks in investing, so you’ll learn more about this later.

How much should I invest?

This depends entirely on you and your income. You don’t need to make a bulk investment, you can go with a savings plan. This is when you make small, regular (eg. weekly or monthly) investments in an asset of your choice, in order to accumulate a profit in the long-term future. This is great if you want to invest but don’t want to worry about the volatility of the market.

Before investing, take the time to look at your finances, your assets and liabilities and figure out how much (disposable) income or savings you are able to invest.


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