Investing is the best way to grow wealth and become financially free. Investing allows you to not just beat inflation but also multiply your wealth. Through investing, you can let your money work for you.

In addition to a day job, everyone should have an investment plan and strategy. Even though investing is not a passive activity and requires considerable time and knowledge, it is still something that everyone should find the time to do.

Even though investing may not add to your wealth very quickly, over long periods of time, small investments can add up to a large and significant amount.

Before starting to invest your money, here are a few things that you should do.

  1. Making & Knowing Your Financial Goals

Set financial goals for yourself and your family.

For example, do you need to send your kids to college? Do you need money to purchase a house? Do you need a retirement fund?

Check the amount of money you will need to do the things that you want to do. These are your financial goals.

Your financial goals will help you to plan your investment strategy and clarify your needs. Once you have your financial goals, you can start to take steps to achieve them. Without clear goals, you will not be able to set a valuable investment strategy for yourself.

  1. Create A Budget  

Once you have made your financial goals, the next step is to create a monthly or daily budget. This monthly budget will be based on your income and your expenses along with your liabilities.

The budget will help you to clearly see how much you can afford to spend in a given month. You will also be able to plan your expenses and cut down on unnecessary expenditures. Your budget will set you on a path to clear your liabilities.

Once you have made a budget, you need to ensure that you and your family follow it. Also, while making a budget, remember to budget for unforeseen expenses as well. You will be surprised by how often they crop up.

  1. Cut Down on Your Debt and Liabilities

After you have made your budget, you will clearly be able to see your debts and liabilities.

Once you know your liabilities, you can plan to reduce them and minimize them. The budget will help you to find out how much of your monthly or yearly income needs to be allocated to reducing your debt and liabilities.

Removing your debt and liabilities from your life is an essential step towards financial security and freedom. For example, if you’ve taken a mortgage on your home, then clearing that mortgage may be your first financial priority.

  1. Get an Insurance Cover

Having insurance cover is an essential step toward financial security. Emergency expenses related to your health, vehicle, home, etc., can arise at any time. Ensuring your health, and other assets is a way of planning and budgeting for such unforeseen expenditures.

For example, if you suddenly need to undergo medical surgery, then having health insurance will mean that you remain financially stable. You will not have to suddenly spend a large amount of money that can even put you in debt.

Even though insurance premiums seem like a lot when we are paying for them, the safety and value that they add to your life are immeasurable. Some of the different types of insurance that you may consider getting are health insurance, motor insurance, and life insurance.

  1. Set up an Emergency Fund 

Before you start to invest your money, you should ensure that you have an emergency fund. The emergency fund will ensure that you can meet any urgent needs if they arise. Having an emergency fund ensures your liquidity even during difficult times.

For example, you can keep six months' worth of expenses as your emergency fund. In case you lose your job or have a different kind of emergency, this type of fund will available for you to dip in.

Having an emergency fund before you start investing your money also means that you can afford to lose the money that you have invested.

Since investing inherently carries risk, this is a good safety blanket for you to have.

  1. Know your Time Frame to Achieve Your Goals 

Plan the time frame in which you need to achieve your financial goals.

For example, if your child needs to go to college in three years, then you know that you have three to save and invest money for that goal. If you’re going to retire in 10 years, then you know that you have ten years to make a retirement fund.

A lot of your financial goals may not have hard deadlines. For such goals, you need to create a deadline for yourself. For example, if you want to buy a house, then set a timeline for that goal.

The timeframe that you add to your goals will help you reach your goals faster and will help you to make plans to achieve those goals.

  1. Create a Plan for Achieving your Financial Goals 

Once you have made your financial goals and set a timeline for them, the natural next step is to create a plan to achieve those goals. You need to have a plan before you can start your investment journey.

Look at your budget to see what kind of cuts you can make to achieve your goals. Check out the various investment options to check which kind of investments provide returns that are enough for you to meet your goals.

The plan that you create to help you achieve your financial goals includes your monthly expenditure limit and investment strategy.

  1. Learn About the Financial Market and the Basics of Investing 

If your plan includes having an investment strategy, then you need to learn about investing and the financial market.

Rather than making blind investments based on marketing material, you need to educate yourself concerning investing and how to go about it. You should familiarize yourself with the financial market so that you can make an effective investment strategy.

Do not rely on advice from strangers to help you with your investment. You should take the time to learn about investments yourself if you are going to succeed in long-term investing.

  1. Check all the Available Investment Options & Financial Instruments

Before you can start investing, you need to know where to invest. There are numerous investment options out there. It is best to choose financial instruments and investment options that suit your specific needs.

Every type of investment option has its own pros and cons. For example, via a CMA-regulated broker or trading futures contracts on NSE may offer potentially higher short-term returns than some other instruments, but they are also considered highly risky.

Buying real estate may be a relatively safe investment option, but the market for real estate is much less liquid. Also, another option that is less risky to invest in mutual funds.

You should check every type of investment option available to you, and then decide which ones you are going to take part in.

Some of the different types of investment options that are available in Kenya are Mutual Funds, Government Bonds, Bonds, Stocks, ETFs, REITs, Derivatives, Forex, Bitcoin.

  1. Assess Your Tolerance or Appetite for Risks

You should find out your risk appetite so that you can plan your investments carefully. Every investment option has its own risk profile. This means that some types of investments are much riskier than other types of investments.

For example, investing in the stock markets is considered risky because the chances of you losing your money are high. In contrast, investing your money in government bonds is considered safe because the government honors its commitments.

You should assess your risk appetite based on your income, your financial goals, and your budget. If you have a high income but relatively few financial goals, then you may consider investing in more risky options.

Remember to be Cautious

Investment requires careful studying, planning, and strategizing. Investing is not a passive exercise. You need to spend a lot of time and research to do it properly.

There are several investment books available that you can study to get a better understanding of the investment opportunities out there and their respective risk and reward profiles.