Blog | Personal Finance

How to Invest Your Money: 3 Simple Steps to Creating a Winning Investment Plan

Learn how to map out your path to financial freedom and then take action

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Summary

  • “Not having money” is only an excuse that prevents you from successful investing

  • Investing your money requires habit breaking—but it’s worth it

  • Remember: start small, think big!


Over the years, you may have noticed the progress people have made to become more financially independent. Yet despite the forward momentum, planning for retirement is still a challenge. Perhaps that’s because of the lifelong “education” everyone has gotten about finances.

The truth is, the majority of the American population was advised to “save for their future,” or “go to college” for a solid career that secured their retirement; and don’t get us started on the scam that is your 401(k).

Because of this, most people are still facing a crisis when it comes to their finances, and their retirement outlook is dreary.

Invest in your future

If you want to prosper financially, it is imperative that you learn how to invest. Unfortunately, you probably don’t even know where to start. The good news is it’s not that hard — and it can be fun!

The following are three simple steps to creating a winning investment plan that can change your financial future.

Find out which asset class excites you most, and then drill down on the type of investments in that class that you want to learn the most about and put your time, money, and energy into.

For Robert and Kim Kiyosaki, it began with real estate. They started with single-family housing and then expanded into apartment buildings. While they could have done commercial real estate, like office buildings or mini-storage, they really fell in love with focusing on residential real estate. The best part is by drilling down on it, they soon became experts— all while having a blast!

  1. Determine how much you can invest

    A lot of people make the excuse that they don’t have any money to start investing. For most people this is simply not true. Rather, they spend their money on any number of things that they don’t really need and then have no money left over. The problem isn’t that they don’t have enough money, the problem is how they budget the money they do have.

    The other important thing to consider here is that you don’t always have to use your money to invest. For more on that concept, brush up on how to invest using other people’s money .

  2. Find out what you want to invest in

    Another reason many people are intimidated by investing is because they don’t understand the variety of things available to invest in. For most people, investing means a 401(k) or the stock market. But the reality is there are so many other areas where you can invest your hard-earned money — you just have to find the winning investment plan that works for you.
    For starters, take a look at the five main asset classes:

    • Paper

      Paper assets include stocks, bonds, mutual funds, and retirement accounts where you can invest in stock options, stock futures and foreign exchange. Paper assets also include real estate investment trusts, or REITs, and exchange-traded funds (ETFs).

    • Real estate

      Real estate investments either provide cash-flow from rental properties (the overage you make each month from rent once all your costs are paid) or capital gains (a one-time profit from buying and selling a property).

    • Commodities

      Commodities include metals (gold, silver, copper, etc.), food (grains, corn, coffee, and sugar), and raw materials (oil, gas, cotton, etc.). Commodities are generally a capital gains (or loss) investment, and you can buy future contracts of any commodity through the future exchanges.

    • Business

      This is an asset that people have become more aware of thanks to television shows like “The Apprentice” and “Shark Tank.” Within this class, there are two routes to take: 1) invest in your own business or 2) invest in someone else’s private business or company. The whole point is to generate a return back to you, the business and your investors and/or lender.

    • Cryptocurrency

      Cryptocurrencies include Bitcoin, Ethereum, and Ripple (among others). This is an asset class that is rising quickly, but does require some expertise to navigate. Though the short-term gains can fluctuate in the 1000% gains, it can be dangerous if you don’t know what you’re doing - but extremely rewarding if you do.

  3. Make long-term goals

    Once you know how much you can invest and where you want to invest, establish your long-term goals. Write them down and revisit them often. For instance, if you invest in residential real estate, maybe you make a goal of buying one rental house in your first year. Then maybe you make a goal of buying two in the second year. Then you could have a goal to purchase a small apartment building by year five. Whatever it is you choose to invest in, have a plan to go big in the long-term and stick to it.

3 steps to investing your money

Ok, now that you have a winning investment plan in place, it’s time to take some action. You can’t just daydream about your plan forever — the first step is always the hardest, that’s a promise.

That’s the irony of the advice to “start small” when it comes to investing: When you’re first starting out, nothing feels small, even when it is. It takes time to get comfortable with taking these leaps of faith and parting with your money — although the more research you do and more experience you gain, the less risky it is. After all, you still want to be able to sleep soundly at night.

But with baby steps, you’ll see the progression. Take the Kiyosakis, for example. They started with simple, single-family homes; today, they own more than 1,000 apartment units. Nearly every successful real estate investor starts small, too. And so should you.

But what exactly does that mean? Let’s see what starting small looks like in reality:

  1. Take a deep breath

    The first thing you should do when you’re getting ready to make your first investment is simply to pause, take a deep breath and relax. Easier said than done? It doesn’t have to be.
    Do your best to put aside how you’re feeling and instead look at the facts and figures. What is the real risk if the investment fails? Chances are, very little. Maybe you’ll lose a little money and come out with some hard-earned lessons. Now, examine the risk from not moving forward. You’ll never grow, learn, or get closer to financial freedom. Then ask yourself: Which is worse?

  2. Build your confidence through education

    Do you still have dreams that you’re back in high school, it’s time for finals and you didn’t study and don’t know any of the answers to the test questions? That’s one of the worst feelings ever — the fear of not being adequately prepared. A big contributor to investing anxiety is not feeling confident in what you’re doing due to lack of knowledge.

    “The best investment you can make is in your own abilities. Anything you can do to develop your own abilities or business is likely to be more productive.” —Warren Buffett

    That’s why it’s imperative you take the time to study and understand your chosen asset category (real estate, stocks, cryptocurrencies, etc.). This includes reading as much as possible and attending free workshops and online webinars.

  3. Think big even when investing small

    When getting started in real estate, start small with your first investment. This doesn’t mean you should think small. Quite the opposite, actually. You should think big when it comes to where you want to go and what you plan to achieve. The sky truly is the limit, so don’t add unnecessary boundaries to your dreams.
    Once you’ve got your goal (and hopefully it’s one that scares you a bit, as there’s nothing quite as motivating as a scary goal), break it down into bite-sized sub-goals so that you aren’t left paralyzed by where to begin. Always begin with the smallest step. Keep moving forward, first with little steps, small investments, and then progress to bigger steps. As your experience and confidence grow with each success — and yes, even through the setbacks — you will get closer and closer to your big goal.

Final thoughts on how to invest your money

Remember, taking the first step is only the beginning of a much larger journey - filled with success and failures along the way. Even though you might start with a small investment, always think big!

Original publish date: June 16, 2016

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