What one piece of advice do you want to give a beginner who wants to start investing? originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Aaron Webber, studied at The University of Chicago Booth School of Business, on Quora:
Create a budget and then invest from what that budget allows.
But work backward in your approach. Making investing your top priority, instead of waiting until the end of the month to scrape together some money to invest. Look at it from a perspective of how much money will expenses take away from your intended investments, and not the other way around.
If you don't, it'll be much easier to succumb to the temptation of spending money on things you don't really need. That’s why it's imperative to have your investment strategy pre-defined and allocated before you even begin investing.
A easy method that I recommend for doing so (particularly from young folks leaving college) is setting up two accounts, a savings and checking account.
I'm aware you don't get great returns from a savings account, but it's the discipline in the structure that matters. Have all of your wages deposited directly into the savings account. And then, based on the budget you've defined, transfer out only what you've proven to yourself you need to live on.
There will be a bit of trial and error to determine this amount, as well as unforeseen expenses. You do need to have your fun, do things that keep you happy at the moment, but build everything into your budget. What matters most, is that you make sure what needs to be left in the savings accounts, STAYS in the savings account.
In this scenario, you'll find that you'll save more, and you'll have better control of your expenses going forward.
Save and invest first, spend second.
If you don't feel you have the self-discipline to keep this system up, then find a trusted parent/mentor to be the signatory on your account. This way, anytime you need to take money out of savings, or away from investments, you have someone to report to. You'd be shocked at how effective this simple action is.
Whenever temptation strikes to purchase something silly, you'll be forced to pause and think through that decision because there now is someone holding you accountable. The mere act of contemplating the expense, and how you'll need to justify it, is enough to prevent following through with it. As the signatory of multiple accounts, I've seen this happen countless times without ever having to say a word myself.
Some fun purchases are certainly permissible and important for enjoyment, the point is the exercise creates a discipline. It creates what I call a compliant environment, which allows for maximum savings and therefore maximum inputs to your investments.
Establish the discipline to save first, and then begin investing it responsibly on a consistent basis. It does not take much, but you'll quickly understand the value of compounding interest.
This question originally appeared on Quora - the place to gain and share knowledge, empowering people to learn from others and better understand the world. You can follow Quora on Twitter, Facebook, and Google+. More questions: