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The 7 essential rules of investing

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If you want to secure your financial future and build your wealth, investing can be an incredibly rewarding tool – but we know that investing can be as daunting as it is exciting and you may not be sure where to start. That’s why we’re here to help you enter and advance through the world of investing, one step at a time.

With some knowledge and smart strategies, you can set yourself up for long-term success.

This is where the 7 essential rules of investing come in.

From the importance of paying yourself first and following a budget to building an emergency fund and diversifying your investments, these principles will help you navigate the world of investing.

So don’t be afraid to dive in and learn more. With the right tools and mindset, investing can be a fun and rewarding journey toward financial stability and growth. Let’s get started with the 7 essential rules of investing!

Rule 1: Pay yourself first 

Before you start investing, it’s important to remember that the most important investment you can make is in yourself. 

Think of it this way: when you dine out at a restaurant, you are paying for the service and experience provided. Similarly, when you buy clothes from a brand, you are paying for the materials and design. In both cases, you are investing in something that will give you value in the present moment.

Paying yourself first means setting aside a portion of your income for investments that will pay off in the long run. It’s like making a monthly payment to yourself, one that will continue to grow and multiply as you make smart financial decisions.

A good rule of thumb is to set aside at least 20% of your income for saving and investing as soon as you receive your paycheck. By prioritizing your own financial well-being, you can ensure that you have a strong foundation for future growth and stability.

Rule 2: Set a budget

When it comes to managing your money, it’s important to have a plan in place to make sure that you make the most of your income. One way to do this is to follow the 50-30-20 rule.

The rule suggests that you should allocate 50% of your income towards necessities like rent, groceries, and transportation, 30% towards things that you want but don’t necessarily need, like shopping and eating out, and 20% towards saving and investing.

While these percentages can be a useful guide, it’s important to remember that everyone’s financial situation is different. If you are in debt, for example, you might need to prioritize paying off your loans over saving and investing. Alternatively, if you are in a stable financial position, you might choose to allocate a larger portion of your income towards investing in order to grow your wealth over time.

Ultimately, the key is to find a balance that works for you and to be mindful of your priorities. By taking control of your financial future, you can set yourself up for long-term financial success.

Our budgeting tool can help you track your spending with ease.

 

Rule 3: Get rid of your debts

If you want to see your money grow, it’s essential to eliminate any obstacles that may be standing in its way. One major roadblock that can hold you back from financial success is debt.

Debt can take many forms – you may owe money to a bank for a loan or to a car dealership for a vehicle. No matter the source, debt is a burden that can weigh heavily on your finances.

The longer you take to pay off your debts, the more you may end up owing in interest and fees. This can make it difficult to make progress toward your financial goals. That’s why it’s so important to tackle your debts head-on and work to clear them as soon as possible.

Before you start investing in stocks, mutual funds, or other financial products, make sure that you have a solid foundation by paying off any debts. Once you are free of this burden, you can focus on building your wealth and securing your financial future.

Our article 3 ways to get out of debt can help you set a plan in place to clear your debt.

Rule 4: Build a solutions fund

As you work to get your budgeting under control, it’s important to also consider the unexpected events that life can throw your way. Emergencies such as car troubles, medical procedures, or even a loss of employment can be difficult to anticipate and can cause significant financial stress.

To protect yourself against these types of events, it’s a good idea to build a solutions fund. This is a reserve of cash that you can easily access in times of need and should be sufficient to cover your basic living expenses for a period of six to twelve months.

Having a solutions fund in place can provide you with a sense of security and peace of mind, knowing that you have a financial cushion to fall back on in times of crisis. So, as you work to manage your money and plan for the future, don’t forget to set aside some funds to help you weather any storms that may come your way.

Rule 5: Start early to maximize your profits

When it comes to investing, it’s never too early to start. Even small investments made early on can bring big returns over the long term, thanks to the power of compound interest.

Imagine that you are 20 years old and you decide to invest EGP 100 in a mutual fund that has an average annual return of 8%. If you continue to contribute EGP 100 per month for the next 40 years, your total investment will be EGP 48,000. At the end of those 40 years, your investment will have grown to over EGP 237,000, thanks to the power of compound interest.

On the other hand, if you wait until you are 30 years old to start investing the same amount, your total investment will still be EGP 48,000, but your final balance will be only about EGP 163,000 – a difference of nearly EGP 75,000.

This example illustrates how starting to invest early can have a dramatic impact on your financial future. The earlier you start investing, the more time your money has to grow and multiply. Take control of your financial future today and start reaping the rewards of long-term investing.

Rule 6: Diversify your investments

One of the most effective ways to manage risk in your stock portfolio is to diversify your investments. This means not putting all of your money into a single stock or industry, but rather spreading it out across a variety of them.

For example, you might choose to invest in a mix of stocks from different sectors, such as technology, healthcare, and finance. This can help to protect your portfolio if one particular sector experiences a downturn, as the others may still be performing well.

By including a mix of different types of investments in your portfolio, you can further spread out your risk and increase your chances of financial success.

So, if you’re looking to build a strong and stable stock portfolio, don’t forget the importance of diversification. It’s a simple but effective way to manage risk and protect your wealth over the long term.

Read what is diversification article and understand what it can do to your investments 

Rule 7: Understand what you invest in

One of the keys to successful investing is making sure you understand what you’re putting your money into. That doesn’t mean you have to be an expert in finance or economics, but it does mean taking the time to do some research and understand the potential risks and rewards of your investments. Do you know what the difference between a stock and mutual fund is? How about an ETF?

Don’t be afraid to ask questions and seek out resources to help you make informed decisions. The more you know about your investments, the more confident you can be in your financial choices.

Taking the time to educate yourself about your investments doesn’t have to be daunting. It can actually be a fun and rewarding process, as you learn more about how to grow your wealth and secure your financial future.

You will find dozens of articles that explain money and investing simply on this website. 

We hope that the 7 essential rules of investing have provided you with some helpful guidance as you get started with your investing journey. By following these principles, you can take control of your financial future and set yourself up for long-term success.

Remember, investing is a marathon, not a sprint – it’s about making smart and informed decisions over time, rather than trying to chase short-term gains. So take the time to educate yourself, set clear goals, and follow a disciplined approach to investing.

With a little bit of planning and discipline, you can build a strong foundation for your financial future and achieve financial success.