Investing as a Beginner: 5 Steps to Take Before Starting to Invest



Nowadays, there is information all over social media and the internet that shows just how “easy” investing is and how it can set you on a path to financial freedom. However, this information fails to show how investing too early can hurt students if they are not financially secure and prepared beforehand. This guide will serve to outline the five most important steps to take before investing your money. It is meant to serve as a checklist of sorts that will put you on the most prepared path possible to effectively invest your money.

Creating a Spending Plan to track your budget

The first important goal is to have a spending plan to track your budget. Creating a spending plan to track our expenses is important to know how much surplus or deficit we are in monthly. If you are spending more than you are earning, investing probably isn’t your first priority. You must first learn to responsibly and effectively manage your finances before you make decisions that could affect your money portfolio negatively.

One of the best ways to track your budget is to utilize an Excel spreadsheet. Here is a template to use. Having a spreadsheet requires a lot of monitoring, so if you are hoping to have a more hands-off approach, utilizing an app will be in your best interest. Some apps you can try are Mint, PearBudget, and PocketGuard. Mint is an online personal finance tool that allows you to add your income and expenses and helps you track your spending. One positive of Mint is that it allows you to connect your bank account and bills. This then allows you to track exactly what you are spending on the daily. PearBudget is another useful tool that helps you understand your spending and make a plan for the future. It offers a free budget-tracking spreadsheet and an online budgeting interface. PocketGuard is also another budgeting app that gives users a more holistic view into their expenses and cash flow to help save more money. The app prides itself on providing users precise numbers of money expenses and income. One useful thing about PocketGuard is that it categorizes your expenses and puts them into charts, tabs, and graphs. This helps you gain a better idea of where you are spending most of your money and how you can cut down on your spending.

Build an Emergency Fund

Another important element to set yourself up for financial stability is to establish an emergency fund. It is really up to you, but around 3 months worth of living expenses is the standard minimum. Many wonder, why have emergency money tucked away somewhere when I can be using it to invest or spend? The reason is that emergency funds create a financial buffer that can keep you afloat in a time of need without relying on credit cards or loans. This is essential so that emergency situations don’t put you down the drain and force you to go into debt.

An example that serves as a supporting case for emergency funds is a personal one. Last school year, I went on a trip and somehow, my computer’s screen got shattered. I did not have money to replace it so I spent one month of school using a shattered screen, barely able to see my lectures or my work. It was awful. After I had gathered the money, I got a new computer — but not before I had suffered through a month of difficult school and many frustrations. All of this could have been avoided if I had had an emergency fund in place to help buy me a new computer on the spot. This is one reason emergency funds are so important. Other reasons include emergency medical expenses, housing problems, unprecedented school expenses, and more.

Define your goals and make a plan

The third step to take before investing is to define your goals and make a plan. Do you want to invest long-term or short-term? Do you want large, short-term profits or even larger long-term profits? What are you willing to give up and how much money do you have to invest? All of these questions are important to guide your investing decisions. You should never invest on a whim, or just put your money somewhere because someone on TikTok told you to. Something that you will hear often if you dive deeper into the investing world is “do your own research.” This is invaluable information because regardless of what people say, you must always do your own research, have a goal in mind, and plan out the steps you will take to reach that goal.

When you are making your plan, you should think both long term and short term. You do not need to write down specific dates/times because those can vary, but you should have a good idea of how much you want to invest, where you want to invest, and how you want to invest. This involves taking the time to do your research on different investing platforms, types of stocks and investments and understanding the pros and cons of long- and short-term investing. You can use online platforms to guide you in making the plan, but ultimately you should determine your goals for the future based on your desires for your investment portfolio.

Evaluate your tolerance for risk

Once you have defined your goals and set your plan, you need to evaluate your tolerance for risk. Are you willing to take on high-risk investments? How much money can you afford to lose? Would you rather play it safe? Something very important to understand is that every investment, regardless of how “safe” it is, involves some sort of risk. Thus, when you are investing, all the money you plan on investing is money that you should be prepared to lose. This does not mean you will actually lose the money. The goal of investing is to make more money, not lose all of your money. However, it is important to note that the market has ups and downs, it crashes, and companies fail. If you make a poor investment, be prepared to have your money go out the window, never to be seen again.

Risk and reward go hand in hand. This means that the more risk you take on, the more potential reward. When you are evaluating your risk tolerance, you need to calculate your risk to reward ratio. You can use online tools to do this, or you can estimate in your head. For example, if you are willing to lose $5,000 and investing this money could earn you $10,000 or lose you $2,000, then you have a pretty standard risk to reward ratio. If you are willing to up this money to $10,000 and maybe have a potential of earning $30,000 or lose you all $10,000, you have a pretty high-risk tolerance. Generally, people that make riskier investments can afford to lose more money. People that take on less risk are less willing to lose their money in their investment game.

Learn Investing Basics

The last step once you have finished all of the above is to actually start understanding how to invest. Where should you invest your money? What are the different types of investments you can make? Will you be trading on the primary or secondary market? Are you more interested in cryptocurrencies or common stocks? These are important questions to ask yourself and research to better grasp the basics of investing and how to make your investments work for you rather than against you.

There are a lot of resources to help you with learning about investing. A great site to explore is Investopedia, which provides information on a variety of topics: brokers, account, investment types, different stocks and more. Also, the SEC is always a great resource and as investing and wealth management has been expanding over the years, news platforms and articles have been uploaded to give you a more credible and comprehensive overview of investing. If you would like to take more professional type courses, you can always explore Coursera or various other platforms that have free, or sometimes paid certificate courses.


This guide has taken you through the five main steps to take before investing. There are many other steps and considerations you should understand before you jump headfirst into risking your money.

Though I have taken a cautious approach to investing throughout this article, it is crucial to know that the reason why it is so popular is because it works. If you take the right steps, do the lengthy research, and ask the right questions, you will be able to grow your money through investing. It is a proven way to expand your resources and have your money work for you.

I hope this has been helpful and if you have any more questions or would like to hear more about investing, you can message me on Medium.

Best of luck on your future investing journey!