The majority of individuals find it difficult to time their initial investing phase. There are seven steps that Dave Ramsey, a famous American businessman, who specialised in personal finance, suggested to guide individuals accordingly. They are now more relevant than ever when considering the current market conditions.

The first step that he suggested is to save apart at least €1,000, rather than allocating such amount to investments immediately. This step is really important. We shouldn’t start investing if we don’t have enough money to pay for any possible unforeseen events.

According to Ramsey the reason why having an emergency fund of €1,000 is important is because it lessens the possibility of any particular individual being able to take a loan. In actual fact, not having partial savings will undoubtedly work against the principal of investing as it would make an individual pay more for each expense accumulated.

The second step that he recommends is to pay off all the debt except for any held in real estate. There is a specific way of doing this. Start by paying your smaller debts first and later the larger ones. Don’t worry about the interest rates. You should only worry about the interest rate if your debts have a really similar payoff. The idea behind such rationale is that the difference between the interest rates usually will not be greater than the entire debt itself. Therefore, you should pay all your debt before investing.

The third step is about building a full three to six months of expenses in savings. This is a way of following step number one, but the thought after this step is that you are saving for possible rainy days, such as for instance being fired from your current job.

The fourth step kick offs into the investment world as it suggests that individuals should invest 15% of their annual income into a retirement scheme. There are many ways of doing this, but primarily a retirement scheme allocation should be based on the individual’s age. For instance, a 25-year-old individual should have a high allocation to equities, decreasing accordingly as the individual approaches retirement.

The fifth step is to save for your children’s college fees. There is not a perfect percentage about this step because every case is different. It all depends about the number of children, the school’s location and at which university you would like to enrol your children too.

The sixth step is more about the loans an individual holds on real estate. Here, it is crucial that an individual seriously considers the momentum in interest rates. At times, the interest payments you are paying might be higher than the returns you are getting from your investments. And yes, this might be a case where in actual fact you are losing money rather than saving.

The seventh and last step, in my view, is the most exciting. It is the decision process where one would start building his investment portfolio through investments in different financial instruments, such as stocks and bonds.

It is imperative to have a professional financial adviser or manager to help you achieve your objective and expectations through a variety of investments. Over the past years, financial markets were conditioned by political turmoil in addition to several monetary prepositions, therefore it is now more crucial than ever to be guided accordingly by serious professionals. Guidance is important if you want to achieve your retirement goals through the financial world.

Disclaimer

This article was issued by Bernardo Serrano Vazquez, investment management support officer, at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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