If you are a developer like me you are working a lot of hours on your own and your customer's projects. It is safe to say that we live in a wealthy time for our trade. In this article I will talk a little bit about how I am trying to make use of what I am earning and why it is important to invest a part of your earnings. I would have given a lot if I had known in my early 20s what I know now. Let me share this insights with you, so you might profit from it!
One of the most compelling reasons for investing is to not having to work your entire life. Doesn't this sound great? I want to keep you down to earth though and I am not saying that you should save by eating only rice and potatoes. Far from that. You should be able to enjoy your life! If the question between saving and a glass of wine on your terrace arises, always go for the wine! That being said, I am for building a portfolio on the side. My personal goal is to build it up to the point where it will provide me with a good passive income. The most important think is to start early and take advantage of the compounding effect. I found that putting away 10% of my monthly income is the perfect compromise. I bet that you can live on 10% less without sacrificing your current lifestyle. Join me in this simple experiment: Note down all your spendings for a month. You will immediately see where you can cut down on unnecessary spendings.
Where to invest?
There are a lot of ways to invest your money.
- Savings accounts
- Real estate
- B2B credits
They all have different risk/reward ratios and you have to find out what you are most comfortable with. I chose stocks and ETFs for my portfolio as it seemed to me the most easy option to start out.
Not all stocks and ETFs are similar though. Big and established companies often have lower risk and lower growth potential. Selecting companies for your portfolio can be a bit tough in the beginning. You would have to read up on all their financials and understand their business model. I would recommend starting out with ETFs (Exchange Traded Funds) tracking an index. In doing so, you immediately diversify your portfolio. This means that you don't have to watch your portfolio all the time.
Once you familiarised yourself with the market, you can think about choosing single companies to invest in.
How does it work?
First you will need a broker where you can buy stocks and ETFs. Most banks offer a broker service but they usually take high fees for each trade. Sometimes event for keeping your portfolio. Online brokers are usually cheaper, because they don't have so many employees and will not counsel you in your investment ideas. Some online brokers even have free ETF saving plans. They allow you to buy a certain value of ETF each month for free. This is the best option if you want to put aside a part of your earnings every month because you will not have any transaction costs.
How safe is investing?
The risk of your investments depends on which type you chose. Also how you structure your portfolio. If you are buying and index ETF you are safer as you would be going for a single company. Most stocks and ETFs have a risk rating that you can have a look at. In general: There is no investment without risk and not investing your money is probably the most risky choice.
DeGiro: This is the broker I am currently using. Yes, this is an affiliate link where you will get € 20,-- in free transactions for you to try.
Seeking Alpha: This is a very useful site to track your desired portfolio and read up on news and analysis.
SimplyWallSt: An interesting analysis tool where you have the key figures of a stock on one page.
Books on investing
There are a couple of good books which will put your mind on the track of investing. They will give you insights and the tools to evaluate and choose the best investment for you.
- Rich Dad Poor Dad: The classic by Robert Kiyosaki. This book is an entry level read and will introduce you to the idea of making money through investments.
- The intelligent investor: Written by Benjamin Graham, this book describes value investing. Benjamin Graham is the definitive mentor of Warren Buffett. This book is not the easiest read, but describes the concepts used by Buffett in great detail.
- The richest man in Babylon: This book by George S. Clason tells the story of a man finding his path to wealth.
I am not a professional financial adviser. Investing often involves risk and you have to take care that you are aware about what risk you are getting yourself into. You have to acquire knowledge and make your own desicions based on it. I cannot and will not take responsibility for your investing endeavours.