Raising initial capital: 4 approaches, of which one is not good

24 Nov 2022

Let's break down the thought from the previous post in more detail. Obviously, to buy stocks, you have to have money, and if you are determined to become an investor, get ready to open your piggy bank. If you don't have savings, however, don't despair, there are other options.

I suggest you look at the following 4 options for acquiring the finances to buy stocks:
- Reduce your current expenses
- Sell unnecessary assets
- Increase your regular income
- And the option I don't recommend using at the start is to borrow.

I immediately stipulate that it is your, and only your responsibility how to apply the knowledge gained - to use something of the proposed or to go another way. I do not insist on anything. Rather, I am sharing information, but the decision is up to you in any case.

My opinion - always start with reducing your current costs, because the funds you save now give you a chance to increase your wealth in the future through investing. Make it a rule to plan your purchases in advance and buy only what is on your list. Don't go to the store without a list, otherwise you will buy more than you really need.

Next. Look at your possessions. Make a list of what you can sell without compromising your financial and mental well-being. Let what you don't need now serve to increase your wealth in the future.

Increasing your regular income is probably the most time-consuming but feasible way to accumulate funds for investment. Many people are often faced with the problem of choosing between a job they love where they don't earn enough and a job they hate with a higher income or, even worse, a job they hate with a paltry income. In the latter two cases, I recommend becoming an active user of services that will help you find the job you want (but don't act in haste, don't quit a job you don't like right away). Remember our goal is to keep and increase our income, not lose it altogether. In the case of a job you love and don't make much money, think about how you can increase your income in your current job. Sometimes all you have to do is make up your mind and ask your employer for it. Even a small increase will help you start saving. And if you have both a job you love and a desired level of income, I congratulate you, you are truly lucky.

Moving on. Borrowing for investments is the riskiest option. I highly do not recommend it, especially at the beginning of your investing journey. You definitely should not take a loan from a bank or other financial institutions. The credit rate will only increase your costs, and the need to repay the loan every month will break your entire investment strategy.

If family, friends or acquaintances are willing to lend you money long-term and without interest, think about whether your lender is aware of the risks and whether you are aware of the risks associated with investing in stocks, and whether this person will demand the money back before the agreed upon deadline. Even if you have agreed on everything, write down all of the terms of such a private loan on paper, so it is easier to resolve any disputes.

I always insist that the investment is conscious, that you understand and are ready to bear the responsibility and risks. So if you have even the slightest doubt about the borrowing option - don't take it! Consider another option. Ideally - work out a step-by-step plan and accumulate the necessary amount of money gradually.