Does one need to be rich to invest in stocks? The short answer is no, but it can help. So why does the potential investor need not be rich?

Clearly, despite containing only four letters, rich is such a big word. If we’re trying to get rich first before investing, chances are we will never get started. It’s not something that is easy to achieve.

Another big term that people think is a prerequisite is financial security. But financial security requires that in the face of some disaster, such as being laid off or losing a breadwinning loved one, we can afford it. Because that’s what being secure means. If we’re putting this first, can we really achieve this in our 20s? Some of us might be able to do so, but this is a challenging target, especially for breadwinners.

Even if we take it down a notch to financial stability, e.g. having a steady source of income and improving your net worth year by year, I’d say this is still a bit much to be a prerequisite. Why?

The problem with these big terms is that they are ambiguous. Everyone has the same notion but with different metrics. Ask someone for their opinion and chances are they will happily define those metrics for you. There’s little chance to succeed on achieving metrics others define for us; the bar simply gets higher the moment we get closer to reaching it. We have to focus on something that we define and well within our control – expendable income.

Expendable income is money we can replace if lost, which we don’t need now and most probably won’t in the near future, say 6 – 12 months from now. In essence, it is money we can safely throw away. Of course we’d feel bad throwing money away, but many of us can still live despite losing some money, right? If the money is not safe to be thrown away, then it is not safe for investing, and most definitely not in stocks.

The beauty with expendable income is that we set the amount ourselves; no person can (and should) define it for us. We can then work on expanding this income to save ₱5,000 and then finally open our investment account.

Once we are able to expand our expendable income steadily, and start to own investments, then we most likely have achieved some degree of financial stability. After that, we can then work on financial security so that we have less to worry about during emergencies and our eventual retirement. And then, hopefully, one day, we can become rich.

Feature Photo by Bash Carlos on Unsplash