Young Egyptians are increasingly seeking new ways to boost their income, with 30 percent of those who invest in Egyptian stocks being between the age of 21 and 40. It is a popular misconception that ‘investment’ as a concept is exclusively for accomplished businessmen or corporations with large funds.
Egyptian Streets spoke with Ahmed Hammouda and Seif Amr, Co-Founders of Thndr, a mobile platform aimed at making investing in the Egyptian stock market more accessible, on why and how young people should better manage their income by investing.
For both Hammouda and Amr, investing can enable and accelerate financial independence, which is the ability to switch jobs without being severely affected by salary cuts and not depending on others for financial support.
Here are their 10 tips on how to start budgeting and investing.
Tip#1: Start As Early As You Can
According to Hammouda, most people believe in the myth that investing is exclusively for accomplished businessmen or elders who can invest with large numbers. However, the earlier you start investing, the more beneficial it is for you and the more realistic your goals become.
Whether you are planning to retire early, travel, or buy a new car, starting to invest your money is the guaranteed behaviour that will make it easier for you to do so, says Hammouda.
“The younger you are, the more time you have to meet your objective” adds Amr.
Tip#2: Set Your Goals (Why Do You Want to Increase your Income?)
Setting your goals of why you want to increase your income is more or less your driver for investing. According to Hammouda, setting your goals straight before starting to invest is key to organizing your thoughts and strategizing your decisions in investing.
Seif adds that this is one of the most important steps before investing because some investment opportunities might not be compatible with your goals. For example, if you’re planning on buying a new car, investing your money in a bank with an interest of only four percent per annum may be too little to reach your goal.
Tip#3: Learn (About Companies/Investment Terms)
“The more you learn about simple terms of investments, the more eligible you become to make investment decisions,” says Seif Amr
Learning key terms of investments and the mechanism by which you can invest your money is key to reach your planned outcomes, explains Hammouda.
It’s not only important to understand how it works, it is also important to learn about the companies you’re investing in. Seif highlights that knowing the company and having background information about its management gives you a clear sense of direction on how the company is performing.
“One thing you should never do is to invest in anything you don’t understand,” says Seif.
Tip#4: Diversify Your Portfolio
For someone who is not familiar with the field of investment, it can be slightly confusing at the beginning. One familiar rule is “do not put your eggs in one basket”. Seif stresses the importance of diversifying your investments. Meaning you can invest your money in different places. You can start with investing in services or brands you use or engage with on a daily basis.
Hammouda also explains that investing in different places will increase your chances of reaching your goals since the more places you invest in the less risky your investments become. This is why having options is important because you’re spreading your chances of reaching a certain goal.
Tip#5: Invest Consistently
According to Hammouda and Seif, investing is not going to be beneficial if you are not consistent. The scale of your investments or whether you are not generating an additional income does not matter unless you are investing regularly.
Consistency will change your spending and managing behaviours and it will make you get used to how, where, and when to invest your money.
Tip#6: Make Sure Your Plan Is Long-Term
Another tip for those who want to start managing their budget by investing is to make sure to set a plan for the long term as investing is not like a one-off freelance gig: it is ongoing.
In order to see the benefits of your investments, you need to plan on investing for a long time, says Hammouda.
Tip#7: Dedicate A Portion to Emergency Fund
Generating additional income from investing is one thing and managing your income is another thing.
An ‘emergency fund’ is money you put aside and seldom spend any of the money is there for emergencies only (such as becoming unemployed or medical reasons). Seif adds while spending, you should categorize your spendings from daily expenses, leisure, needs, and emergencies.
Hammouda highlights that a good way to calculate how to allocate your money is by dedicating 50 percent of your income to needs, 30 percent to your wants, and 20 percent to your savings (emergency fund). This is most commonly known as the “50-30-20” rule.
Tip#8: Study the Risk Tolerance of Your Investments
Taking a risk is normal, but you need to study your risk tolerance. By ‘risk tolerance’ Hammouda and Seif mean how much you are willing to risk.
Seif explains that the lower your risk appetite is, the lower the return on your investment will be. However, having a higher risk appetite may result in higher returns as it is often the riskier investments (such as in certain stocks) that can yield higher returns.
Tip#9: Always Start By Paying Your Debts
Hammouda highlights that you won’t be able to enjoy the outcomes of your investments if you still have debts or installments to pay. Therefore, the most important thing to start with when it comes to budgeting is to always pay your debts.
Paying your debts will give you more room to define your income and allocate it to different categories of your life, says Hammouda.
Tip#10: Don’t Be Emotional
“Don’t make a decision on a whim!’ says Seif. The worst thing that anyone can do is take impulsive steps in investment. Being impulsive or deciding based on emotions, in general, is one of the traps young investors can fall into, explains Seif.
Hammouda concludes by saying this is why it is always important to strategize and study every step you take and that this comes with experience and learning. Investing haphazardly can make you lose your money.