Apathy is a state of indifference, or the suppression of emotions such as excitement, motivation, and passion.
The above sentence is from Wikipedia – the most important part is missing.
Apathy suppresses Action.
You can be motivated, excited and passionate about personal finance, but that only culminates into something amazing when action is taken. Fear can paralyze all the knowledge you have gained reading books and blogs making the information worthless (well not worthless, but it won’t help you amass a pile of money). Every pay period that you are letting slip by is delaying your financial success and putting more time between you and financial independence.
If you are doing a lot of reading, but not a whole lot of acting, don’t worry, I was the same way a few years ago – start out small and work your way up to an impressive Savings Rate. It will take a few years (for most people) to get into the 20-30% range depending on income and where they start at. Start setting yearly goals (you can view mine here 2016 Financial Goals) and tracking your progress. This post will help you get over some of the fears, excuses, and barriers to investing on your own.
Getting Over the Fear
Losing money – Biggest barrier to investing is losing it all right? I still fear losing money, but there is a huge difference between realized losses and being “down” money. Technically you only lose if you sell lower than what you paid for an investment (or at the same price if you factor in trading costs). If you choose mutual funds or any heavily diversified investment vehicle the chances of losing everything are very, very slim. Buck up, your savings account interest rate isn’t going to save you, after a while, you become immune to the swings of the market and relax.
Not spending money/Image– This may seem silly, but if you are spending all of your money today your lifestyle is too extravagant for your income. You will have to make decisions that others will not understand. Buying a cheaper car, using public transportation, skipping expensive meals/nights on the town, making your own lunch and coffee, etc. Do this incrementally, if you quit everything at once the changes are not going to stick. Make sure to move your money somewhere safe, away from temptation.
Choosing your own investments– Am I picking the right stock or am I being fooled by a popular name that is at its high point? If you are a beginner – you shouldn’t have to ask this question as you shouldn’t be buying individual stocks. There is simply to much risk and unless you are spending a lot of time researching the market, you should pick a fund or ETF. The criteria for picking a fund in my Selecting your 401K Funds post should help you here also.
Safeguard – Start an Emergency Fund that you are comfortable with based on your living situation. This way if everything goes to hell (it won’t) you have some time to get back at it.
Pick a place to host your account – E*Trade, Scott Trade, Trade King – probably doesn’t matter all that much – personally, I use E*Trade and it does everything I need it to. There are some new platforms that are trying to change the game (Betterment comes to mind and I will research it in another post), so do some basic research and choose one that works for you. If something better comes along later the costs of switching are not high.
Saving – If you are going to invest outside of your 401K (which I think you should if you plan to retire early) then you are going to need a place to accumulate cash. I am assuming most financial platforms have an auto debit feature you can set up to start. If you are tight on cash, start an account with the absolute minimum – just knowing the account is there and open will motivate you to start filling it. Even $10-$20 a paycheck is worth putting in there.
Timing – It is difficult to time the market, most people that do it are pros, consistently buying over long periods of time is the key to winning – but that doesn’t mean you need to buy at the high point. The major indices have been a roller coaster that last 6 months, take advantage and buy on a red day when it is down a few percent. This doesn’t mean try to sell when it is a few percent higher, buy and hold even if you are “down”, the market will come back (historically speaking).
The best piece of advice I can give is don’t overthink it and psych yourself out of action, you will care a lot more once you have actual money on the table and it will motivate you to learn and evolve. Don’t be scared of mistakes early on, better to learn them while your stockpile is small.
Action Items – This whole post is about action – If you aren’t actively investing its time to start, open an account and start saving cash until you have enough stockpiled to buy. Any other fears that block you from investing money?
If you want are interested in pursuing FI – Check out My Financial Independence Action Series