Your Money blog: How to get your finances in order before you start investing

While dabbling in investing sounds exciting, you must make sure you have your financial house in order before start.

Steve Cronin is the founder of WISE, a non-profit community helping expats invest sensibly. Pawan Singh / The National

Investing can seem complex, time-consuming and risky, with not much upside compared to keeping your money safe. There is an upside, however - $1 invested now will likely turn into $11 in 30 years’ time. But before you begin your investment journey, you need to make sure you have all your ducks in a row. So here are the factors you need to put in place before you invest:

Adjust your mindset

There are plenty of companies out there that want to convince you investing is difficult and time-consuming. They just want to make money from you. Sure, you have to learn the rules of the game, but the essentials are simple. First, build your confidence and promise yourself these five things:

1. You will take responsibility for your personal finances – anyone who is managing them for you (partner, adviser etc.) will have to explain and justify their activities.

2. You will take some time to learn the basics of investing sensibly.

3. You will not blindly take advice from anybody – friend, family or financial adviser.

4. You will stay calm if the stock market or property prices crash – because they will, and you will know what to do.

5. Within a month from today, you will have taken action. Don’t put this off.

Trust nobody but yourself

You can go to 10 financial advisers in the UAE and get the same bad advice, because they are nearly all motivated by the huge commissions they get from selling you a long-term savings plan or life insurance. Any professional who is advising you but not charging you directly for their time does not have your best interests at heart and is to be avoided. If the adviser is your ‘friend’ then this is doubly true. Never invest in anything that promises you more than a 10 per cent return per year. It is most likely a scam, of which there are all too many in the region.

Manage the ins and outs

Before you start investing, you have to be able to save money regularly. Try to save at least 10-30 per cent of what comes in every month. Ideally have it go straight into a separate savings account - your bank can help set this up.

If you never have enough money left over at the end of the month, review your spending patterns. Look through your credit card statements and identify your top costs - usually rent, transport and food. Figure out what you can save and set yourself a series of increasingly impressive savings goals.

Consider getting a budget tracker app like Wally or Mint. Controlling spending is like controlling your diet - it’s much harder to misbehave if you know you have to write it down.

Make sure you pay off your credit card balance in full every month. This must come first before any savings, because card interest rates are so high. Any loan or card that charges more than 7 per cent interest per year should be paid off before you start thinking about investing beyond cash deposits.

Cash savings

Keep at least Dh500 tucked away at home for emergencies. You now need to build up a cash buffer of at least three months’ expenses, including rent. Then if you or your partner lose their job, you will be able to survive comfortably. Invest this cash in a savings account where you earn more the longer you keep it in, but can still access it within a few days. Once you have your buffer in place, keep your surplus cash in an offshore bank account until you have planned out your investments.

Steve Cronin is the founder of WISE (wiseuae.com), a non-profit community helping expats invest sensibly.

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