What is the First Step to Successful Investing?

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There are plenty of answers you could give to this. You might say it is finding a set amount of money to put away each month. You could say it has to do with finding the right portfolio that will work for you. There could be a million other possibilities that might work as a good first step.

But in truth, another step has to come before all of these, and it’s this:

The first step is to be debt free

Are you surprised? You shouldn’t be, because until you are free from debt you can’t invest as much money as you would like to elsewhere.

The main thing to remember is that all the while you have debt you are paying interest on it. This interest is very likely to be at a higher rate than the rate you would get on any investments. This means it is better to get rid of any debt you have prior to setting up any investments. The only exception to this would be to set up an emergency fund so you have available cash to dip into should you ever need to.

Make a list of your debts

This is the best place to begin. List them all on a sheet of paper and add the person or company you are in debt to and how much you owe them. Don’t worry about adding your mortgage if you have one, since this is a long term debt you would be unlikely to pay off in a short amount of time. But you should add any credit card balances and anything else you owe money on, such as a car loan for example.

Now work out how much you can afford to pay off these balances each month. You may need to make adjustments to your outgoings to do this; for example you can reduce the cost of certain bills by switching companies. Find every legal method you can for reducing your outgoings and making sure you have more surplus cash left to put towards reducing your debts.

How long should it take to erase your debts?

This all depends on how many debts you have and how big they are. But providing you focus on reducing them as quickly and efficiently as possible, you will soon see them starting to reduce in size. Be realistic though – you want to eradicate them as quickly as possible, but don’t do it at the expense of other areas of your life. For example don’t live on beans on toast every day to do it faster.

When should you start planning for your investments?

Once you get closer to paying off all your debts in full, you should start thinking about what you want to invest in. Think about your deadlines too, i.e. whether you have a short, medium or long term investment goal you want to set. The more you know about your aims and goals the easier it will be to reach them.

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