Pay yourself first: how to start investing and build a financial safety net.

What should I save from if I earn a little?

An important rule: for investments, regularity is more crucial than having large sums of money.

In Uzbekistan, you can start investing with as little as $50.

“Pay yourself first,” is a wise financial principle. It means that you should set aside money for your own future before giving it to others.

However, it's essential to analyze your budget first. Look at how much you earn each month and allocate that money across various categories. These will include necessary expenses (utilities, groceries, debt repayments if any, etc.). From the remaining amount, designate 10% for investments. The rest can be freely spent on entertainment, clothing, education, or gifts.

If needed, try to optimize your spending. For instance, cut back on dining out, unnecessary shopping, and living on credit. It might also be beneficial to start using cash more often instead of cards, as people tend to spend less this way.

Often, after auditing your resources, you may find extra money that used to go unnoticed.

If you realize that you require more money for a comfortable life, consider ways to increase your income. Change jobs? Find a side gig? Rent out any property you own?

Why invest money when it's better to live in the moment?

Perhaps the most common question we hear.

Everyone will have their own reasons for this.

The main one is to avoid wasting money on unknown ventures and to make it work for you. Investments not only help preserve what you've earned but also grow your capital at a rate that exceeds inflation.

Here are a few more investment goals.

Financial independence. Investments can become a source of additional income, a supplement to your salary or pension, and help you navigate periods when your earnings decrease or you find yourself temporarily unemployed.

Achieving significant long-term goals – such as buying real estate, obtaining further education, or generating passive income that can boost your salary and assist during financial hardships.

Psychological confidence. Knowing you have a financial safety net reduces anxiety about the future.

Improved quality of life. Investments allow you not to skimp on genuinely important things: proper nutrition, healthcare, travel, etc.

What percentage of my income should I save each month?

Ideally, at least 10% of your income should be allocated to savings each month. If you can comfortably set aside a larger amount, then, by all means, do so.

By the way, the universal Pareto principle of 80/20 applies to investments as well. Spend 80% of your income, save 20%. From that 20%, you can allocate 10% not just for investments but also for debt repayment and establishing a financial cushion. This cushion should equal your income for 3-6 months, enabling you to weather difficult times if your earnings unexpectedly decline or if urgent unforeseen expenses arise. Withdrawing money from your investment portfolio in such cases is not advisable, as it may reduce your interest income. A financial safety cushion is suitable for these purposes.

At what age should I start investing?

As the saying goes, it’s not about how fast you run, but about starting early. The best time to invest, like many important things, was yesterday.

However, in this case, it's better late than never.

There is no upper or lower age limit for investing. For instance, world-renowned investor and billionaire Warren Buffett bought his first shares at the age of 11.

There’s an interesting formula to determine which investment tools you can use based on your age. Subtract your current age from 100. For example, if you’re 35, you'll get 75. This number represents your acceptable risk level, meaning that 75% of your savings can be invested in any securities, while the remaining 25% is better placed in conservative financial instruments (like deposits). The older you get, the lower the first figure will be and the higher the last one.

I think it’s too late to earn from investments now. The cream has already been skimmed by those who invested earlier. Is that true?

Absolutely not. It’s never too late or too early to invest.

Moreover, you should periodically reassess your investment strategy. Your financial goals, income levels, and the profitability of different financial instruments change over time, as do new opportunities for investors in the market.

Your investment objectives evolve, and investing can be adapted to meet your current and future financial goals.

Why do experts advise diversifying savings across several baskets, even if a financial instrument seems reliable?

This minimizes potential financial risks and maximizes income without unnecessary risks. The idea is not to invest in identical instruments that move in the same direction. This reduces the chances of only achieving a specific return that may not always satisfy the investor or not achieving it at all. Your portfolio should be balanced: less risky investments can offset the potential instability of riskier assets.

You can categorize investments as short-term and long-term. This division depends on your financial goals and how quickly you will need the money. For instance, if you plan to travel in six months (a short-term goal) and buy a new apartment in five years (a long-term goal), then the money for the trip should be allocated to the first group of investments – these could be deposits with partial withdrawal options. Meanwhile, savings for real estate could be converted into foreign currency or used to purchase stocks from various companies.

In conclusion, here are the key points to remember for those who have decided to start saving.

Investments are necessary to preserve and grow your earnings.

Aim to save at least 10% of your income each month.

But remember, consistency is more important than large amounts.

It’s never too late to invest – you can start even while retired or still in school.

In conclusion, here are the key points to remember for those who have decided to start saving.

Investments are necessary to preserve and grow your earnings.

Aim to save at least 10% of your income each month.

But remember, consistency is more important than large amounts.

It’s never too late to invest – you can start even while retired or still in school.

Don’t put all your eggs in one basket: diversify your savings across different financial instruments. This will reduce risks and increase potential profits.