Here’s Where You Start: The First Step Toward Successful Investing

Investing in shares is risky business. So, before you open a brokerage account, you need to ensure your finances are strong enough to absorb the blow when disaster strikes one of your shares.

This will allow you to take reasonable risks with confidence — knowing that you and your loved ones are safe no matter which direction the stock market is going.

Here’s how you do it.

Investing in shares is risky business.

Don’t let anyone tell you otherwise.

Sure, there are ways to minimize your risk and put the odds in your favor. But for every stock that explodes for a 1000% gain, there’s a stock that implodes, leaving its shareholders with a 100% loss.

I know this. I’ve experienced both outcomes firsthand.

So, before you open a brokerage account, you need to ensure your finances are strong enough to absorb the blow when disaster strikes one of your shares.

This will allow you to take reasonable risks with confidence — knowing that you and your loved ones are safe no matter which direction the stock market is going.

The key to financial stability is simply to spend less than you earn.

Here’s how you do it.

1. Track all money that enters and leaves your life

Start by becoming fully aware of all the money that flows into and out of your hands.

Get a good pen and a small, durable notebook. Carry them with you wherever you go, and write down everything you buy.

Taxi fare, chips, school fees, top-up cards, rent. Jot down every purchase — big and small — in your notebook at the exact same time you pay for it.

Make sure you note precisely how much you spend on each item. Rough estimates just won’t do. Don’t round to the nearest dollar.

Every penny. Every shilling. Every kobo. Every thebe. Must. Be. Recorded.

Do you have any automatic payments coming out of a bank account? Make sure you note all of those, too.

And, of course, don’t forget to track your income at the same time. Wages, income from selling vegetables from your garden, even the lost coin you find in the street.

(Note, this isn’t an original idea from me. Many financial advisers will suggest you start with a similar system. I was particularly inspired by Your Money Or Your Life by Joe Dominguez and Vicki Robin.)

2. Add it all up at the end of the month

When you reach the end of a month, add up all of your income and expenses.

Break your expenses down into a few helpful categories and tally up the amount you spent on each one.

Here are the categories Britany and I use:

  • housing
  • utilities
  • food
  • telephone and internet
  • transportation
  • entertainment
  • gifts
  • clothing
  • healthcare
  • insurance
  • taxes

You probably spend money on things that don’t fit in any of these categories. Or maybe you think it would be helpful to break them down into sub-categories.

That’s fine. Personalize them according to the way you live your life.

The important thing is to see where your money comes from and where it is going.

3. Review the results and note three things that surprise you

After you’ve summed all of your income and expenses, take a close look at the totals for each category.

Is there anything that jumps out at you? Is there anything that makes you look twice? Anything that puzzles you? Anything that embarrasses or disappoints you? Anything that makes you cheer a little bit inside?

On the next page of your notebook, take a moment to write down three things you find remarkable about your financial life in the previous month. You can write down more than three if you want. But write at least three.

When you’re finished, turn to the next page, and continue tracking your income and expenses.

4. Chart your income and expenses over time

You may have heard the old saying that “What gets tracked, gets improved.” In most things, I’ve found this to be true.

(Although no matter how much I track my consumption of jelly beans, it seems to go up and up every month. Hmmm… maybe that IS an improvement!)

My sugar addiction notwithstanding, close monitoring of a behavior typically leads to gradual change for the better.

This is why this next action item is so important.

First, you’ll need a piece of graph paper. If you don’t have any handy, you can modify and print this one.

This is where you will chart your monthly income and expenses.

At the end of each month, take a green pen and plot your total income on the graph.

Then mark your total expenses with a red pen.

Connect the green and red dots after each month and pretty soon your chart will begin to look something like this.

monthly chart

Now, hang the chart somewhere in your home, where you will see it often. Maybe behind a cupboard or closet door.

You want to see it often enough that it reminds you of the progress you are making.

(And, yes, if you’re savvy with Excel, you can have the computer make this chart for you and skip the green and red pen. But make sure you print out your graph each month and hang it somewhere that you will see it frequently.)

5. When you consistently earn more than you spend, move on to the next step

We’ve reached the decision point.

After several months of tracking your income and expenses, you should have a pretty good idea whether your income is greater than your expenses.

If it’s not, don’t panic. Look closely at your expense categories and see whether there are easy places to reduce your spending. And, if there are ways to boost your income, explore those, too. Continue to monitor your expenses and see if the red and green lines are any closer together a few months from now.

Is your green line consistently above your red line?

Congratulations! You’re ready to move on!

Proceed to the next step here. But be warned… a monster awaits!

It’s your turn

Does this seem like a good first step toward getting your financial house in order? Let’s hear your thoughts in the comments!

Another article you might like

What Is a Stock, Really? (The Story of Boniface, Part 1)

33 thoughts on “Here’s Where You Start: The First Step Toward Successful Investing”

  1. Fantastic advice. Watching our impulsive spending habits. I’m not as savvy with graphs and technology. I do keep a pen and very small notebook with me. I started something similar two years ago. It used to irritate me the coins in my pocket when I receive my change after buying something at the shop. Now I drop them in my piggy bank box. One for 10c, 20c and 50c. From the 1st of Jan until 31 Dec. Then I cash in. Smiling away as a cash in R800, R1000. Not a bad start to the new year. Then I just buy some more shares.

  2. I have stop saying: “No it’s fine keep the change” I’m now shock customers who gives their money away. I have conclude most of us can’t stand waiting for a return that long.

  3. It really does. I was surprise at something so small can add up to a decent amount. I don’t feel funny anymore seeing and picking up a 20c coin on the street also. Because I know where it’s going. I love the principle. It’s a great habit. Teaching me patients also.

    1. Yep. A dropped coin may not be worth much in and of itself, but the act of picking it up helps instill a sense of mindfulness about how we relate to financial resources. That mindfulness, in my view, is priceless.

      1. Great article indeed Ryan. I find this amazing. Here in school i find it sometimes spending more than what i earn. This article would help me to make a deliberate step towards managing my spending habits. A request Ryan, would you please do an article to help us university students save and manage our expenses. Great work though. Our articles are great.

        Felix.. Nairobi Kenya

  4. Great article Ryan. I have found that some online aggregators help quite a bit. I used to use when living in the US but in South Africa yodlee moneycenter, wave accounting and 22seven seem to work pretty well. They automatically pull all of your transactions from different bank accounts (and investing accounts), categorize them and track your spending vs your budget and income. The only downside is that you don’t have the same effect of writing everything down in a notebook to make you as conscious of each purchase.

    Keep up the great articles!

    1. Hi Bongani,

      The price varies greatly from share to share. Some companies’ shares trade for as little as R1 while others trade for as much as R1000. But most trade somewhere between R10 and R50 per share.

  5. hi… I need help with finding advantages and disadvantages of investing in the Botswana stock exchange
    could you please help me out?

    1. Hi Ndulamo,

      The main advantage of investing in shares is that the returns typically outperform other investments over the long-term (+10 years). The main disadvantage is that this return is not guaranteed. There is a chance that an investor will lose money.

      If you’d like more info on the Botswana Stock Exchange in particular, here’s an article that may be of interest:

  6. Hi Ryan

    Good article and tailored for layman.

    I agree with your view to buy and hold. i buy stocks of products i(and people use) regularly use. Hospital groups, private school groups, IT services. I avoid commodities too–burnt my Rands.

    So-called penny stocks are not bad too


  7. Hi Ryan.

    I’m 24 and I’d like to start investing. I’m currently not working though so would that have a negative effect on my plan?

    1. Hi Thabiso,

      Investing in shares can be risky, so you don’t want to invest any funds that you can’t afford to lose.

      In your case, the priority should probably be to boost your income. A full-time job would be great, but it could also be a part-time or free-lance work or even starting your own business. The first step is to save up enough money to support you for several months in the event that you lose your source of financial support. After you have an emergency fund saved and have paid off any high-interest debt, then it’s time to start thinking about how best to invest your savings.

      Great question and I hope this helps!

  8. hi Ryan
    i am 46 year old guy and i am working but have debts. I am really intrested in investment cause i am concerned about my age’ How can i start cause i want make money and pay my debts.
    Regards: wesi

    1. Hi Wesi,

      If your debts carry a high interest rate (10% or more), your best bet course of action would be to first save up an emergency fund equal to about six months of living expenses. Deposit this in an account that pays a decent interest rate. After you’ve done this, then begin using any extra money you have at the end of the month to pay down your debt. Investing in shares doesn’t guarantee you a profit, but reducing your debt guarantees a reduction in your interest expenses.

      Here’s another article that may be of help:

  9. Hi Ryan,

    Just very grateful that you would put this in such a concise manner. I’m hoping to come back and comment on my experience after a year of doing this. Quick question though. Do you have to get rid of ALL your high interest debt before investing?

    Warm regards,

    1. Thanks, Den. Yes, I would advise getting rid of all your high-interest debt. Some types of debt are okay to hold onto (e.g home mortgages), but anything unsecured should definitely be paid off before investing in shares. Paying off debt is a sure-fire way to improve your finances, while shares run the risk of you losing money.

      Hope this helps and please do come back and let us know how things are going for you!

      Warm regards,

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