Before you start
Updated: Dec 27, 2021
Before you go into the world of investing it makes sense to learn what to expect. There are a ton of good investing videos on YouTube available for free, a ton of books, and many online communities of retail investors nearly on every social network. You should join the communities that you like and really become a part of them. You don't have to engage - just reading what other investors say and discuss really helps get the idea of what investing is and how it works. You can look up the big names like Warren Buffet and see what advice they give to new investors. The Internet is your best friend and tool, you should take advantage of it.
You don't have to know complicated financial analysis in order to be a successful investor. Knowing the basics is enough to start and you will learn more as you start to build your portfolio over time. Knowing what you are doing will help you sleep at night without worrying about your money and overthinking. If you bought a stock of a company that you know nothing about - you will sell it when the dip comes because you will be convinced that you are going to lose your money since you don't actually know what you bought.
2. Pay down all high-interest debt.
Before starting your journey in investing you should pay down your credit card debt, bank loans and etc.
When you have a limited source of income it's hard to put money aside and keep up with all the debt payments you have to make every month. That's why it makes sense to focus on paying off debt before investing in stocks. Of course, if you have a mortgage on your house you should continue paying it at your own pace since mortgages usually have a much lower interest rate than, for instance, credit card debt. After becoming as debt debt-free as possible you can start investing without having to worry about debt draining your finances.
3. Create a rainy day fund.
After paying off your debt, if you had any, you should allocate some money for unexpected things in life. Financial experts recommend saving enough money to live off for 4-6 months in case something unexpected happens and you lose the source of your income (shout out to #covid-19). Usually, 3-4 full month salaries are enough.
For example, if you invested $1000 in the stock market and a month later your tooth starts aching really bad and you have to go see a dentist. If you had a rainy day fund this unexpected expense could be taken care of. If you didn't have a rainy day fund saved up you would have to sell your stocks in order to get the treatment from the doctor. Given the nature of the markets, your stocks might be down when you urgently need the money and you would have to sell your stocks for a loss.
You need to understand that your brokerage account is not a wallet. You should only invest your money in the stock market if you are not going to need this money in the next 3 to 30 years. You need to let the money work for you.
If you are saving up for a car and you want to buy it in 6 months you shouldn't invest this money in stocks because 6 months is a short period of time in the world of investing.