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Three Lessons Investing Taught Me About Money
As a woman, I had a fear of asking questions about investing because what if I ask a really dumb question.
Regardless of how many years you've been investing, there's always more to learn. What's even more interesting about this "learning process" are the lessons investing teaches about money.
Having made my first investment in January of this year I want to share the top three lessons investing has taught me about money.
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1. Learn to save and budget, and know your current financial situation
You cannot invest unless you've saved first. I’ve saved money before but I had just a little idea of what I’m saving for. I put money aside every month but the amount changed depending on how much extra money I had leftover. I’ve done this for a quite long time because I just felt better when I knew I had some amount of money in my bank account.
Before I made my first investment, I was a little worried that this is the correct decision. What if I need that money for something else? So I looked closely at my income, expenses, and savings.
The rule I follow is "never let your expenses exceed your income, and always keep your eye on where your money goes." The first one is easy because I’ve never had problems with spending more than I can earn. But the second one, honestly, I wasn’t sure where all my money goes. The best way to check this is by budgeting and creating a personal spending plan to track the money you have coming in and the money you have going out.
I realized the cost of coffee when buying it every morning. For instance, one coffee cost me 77 CZK, I bought it 20x per month, that’s 1540 CZK and that’s 18 480 CZK per year. I could use that money for investing. Small changes in your everyday expenses, like making coffee at home, are completely under your control and they can help to save money.
When I started investing, I improved the way how I save money. I divide money that I want to save into several accounts for different purposes. Before I saved money for two main purposes - emergency fund and traveling. But now I save also for investing and other short-term financial goals like Christmas gifts or moving to a new apartment.
Knowing what I save, how much I want to save, and how much I spend each month gives me a better overview of my current financial situation.
2. Ask questions and educate yourself more
Everyone started at some point. If investing is something you want to start, educate yourself first. As a woman, I had a fear of asking questions about investing because what if I ask a really dumb question, something that should be obvious. For instance: What is a stock? What account should I open for investing? How and when do I have to tax my investment income?
Investing has taught me to ask not only investment-related questions but made me interested in educating myself more in financial literacy. I am looking into getting my first credit card and I want to learn how can I use it in a smart way to manage my money. For instance, by using a credit card for most of my purchases, I can earn rewards such as cashback, airline miles, or gift vouchers.
3. Self-employed people have to invest
Another thing that investing taught me about money is that as a self-employed person I have to create a plan for my future retirement as soon as possible. Being self-employed is great. It gives you a lot of opportunities to grow and to earn a lot of money in the future, but also you cannot rely so much on government support, especially when you want to retire.
In 2021, the monthly average amount of pension in the Czech Republic was around 15 000 CZK ($652 USD), but many entrepreneurs do not reach this amount. If you earn 600,000 CZK ($26K USD) per year, which is more than the average wage in the Czech Republic, you will receive a monthly payout of 10 000 CZK ($434 USD), which is less than the average.
That realization made me think that I should definitely start to take proactive steps and save for my retirement now. Why? Because I have plenty of time to save and invest my money, and I know there will be challenges to face, but the lessons I’ve learned from investing has already made me more confident about my money and my financial future.