Hurdle number one
People spend too much money. They decide that they need the newest iPhone, the most fashionable clothes, the fanciest car, or a Cancun vacation. Say you’re earning $50,000 per year, 15% of which is $7,500, or $625 per month.
In this day and age, that’s a painfully thin margin of saving, and it can be wiped out simply by stringing together several seemingly innocent expenditures, each of which might nick your savings by $100 or so per month: a latte per day, a too-rich cable package, an apartment that’s a little too tony, a dress or pair of brand-name sneakers you really don’t need, a few unnecessary restaurant meals and, yes, an excessive smart phone plan you could, if you had to, not only live without, but also function better without.
Life without these may seem spartan, but it doesn’t compare to being old and poor, which is where you’re headed if you can’t save. You might even save the whole $625 in one fell swoop just by living with a roommate for a while longer, instead of renting your very own place. Again, as bad as having a roomie may be, it’s not nearly as awful as living on cat food at age 70.
Let’s assume you can save enough. You’re not home free, not by a long shot. You’ve got four more barriers to get by.
Hurdle number two
You’ll need an adequate understanding of what finance is all about. Trying to save and invest without a working knowledge of the theory and practice of finance is like learning to fly without grasping the basics of aerodynamics, engine systems, meteorology, and aeronautical risk management. It’s possible, but I don’t recommend it.
I’m not suggesting that you need to get an MBA or even read a big, dull finance textbook. The essence of scientific finance, in fact, is remarkably simple and can be acquired, if you know where to look, pretty easily. (And rest assured, I’ll tell you exactly where to find it.)
Hurdle number three
Learning the basics of financial and market history. This is not quite the same as the above hurdle; if learning about the theory and practice of finance is akin to studying aeronautics, then studying investing history is akin to reading aircraft accident reports — something every conscientious pilot does.
The new investor is usually disoriented and confused by market turbulence and the economic crises that often cause it; this is because he or she does not realize that there’s nothing really new under the investment sun.
via How Young People Can Get Rich Slowly – Business Insider.