I think a lot of people know what investing is but I will still keep this as basic as possible like I would explain it to my 5 year old nephew.
What is Investing?
Investing involves spending money in order to earn a return (financial or otherwise). This basically means you spend money to make money to achieve your financial goals.
Regardless of where you invest your money, you're essentially giving your money to a company, government, or other entity in the hope they provide you with more money in the future. People generally invest money with a specific goal in mind, for example, retirement, their children's education, a house — the list is endless.
Investing is different from saving or trading. Generally investing is associated with putting money away for a long period of time (more than 12 months) rather than trading stocks on a more regular basis. Investing is riskier than saving money. Savings are sometimes guaranteed but investments are not. If you were to keep your money under the mattress and not invest — you'd never have more money than what you've put away. You might might actually end up with less money because the rats would eat it!
That's why some people choose to invest their money. There are many things you can put money into that will give you the above returns like:
Types of investments:
4. Alternative Assets
Now that we have covered some basics let see if you should be investing.
Things to consider before investing
Before you start investing you should ask yourself a few important questions to determine if you are financially ready. You wouldn't run a marathon without preparing for it right?
1. Do you have a lot of credit card debt?
If the answer is yes, you’re probably not in a position to invest quite yet. First, do everything you can do to erase that debt, because no investment you’ll find will consistently outperform the interest rate you are paying on your credit card or store accounts.
2. Do you have an emergency fund?
Shit happens. You get fired or retrenched (which is a trend by most South African companies these days), sicknesses — let us count the ways in which your life can be turned upside down. Any financial adviser will tell you that in order to avoid staying in the shit you should have between six months and a year of total living expenses in cash, or in a savings investment account should the shit hit the fan. If you don’t, bookmark this blog, start saving, and come back just as soon as you’ve got that emergency fund up and running.