Are you interested in becoming a stock investor, but don’t know where start?
It can be difficult to know where to begin when it comes to investing in stocks, especially when the internet is overflowing with information (and misinformation).
That’s why we’ve put together this comprehensive guide to help you traverse the financial markets and take your first steps towards achieving financial freedom.
Step 1: Define What “Financial Freedom” Means For You
First, you need to determine what “financial freedom” means for you. What is the exact amount of money that will make a difference in your life? How much money do you need to be able to live the life you want and be free from worry?
Write Down All Your Lifestyle Expenses
A good way to figure this out is to write down all your ongoing expenses on a monthly basis and add them together. It can be a little tricky with some bills like quarterly utility bills or annual insurance payments, but you can just use some simple maths to get it down to a monthly amount. For example:
- Weekly payments can be multipled by 52 weeks divided by 12 months (about 4.3)
- Quarterly payments can be divided by 3 months
- Yearly payments can be divided by 12 months
Be accurate as possible, and try to cover all the different expenses you have. To help you get started, here are some common areas of spending you can start tracking:
- Home
- Food (including eating out)
- Bills
- Car
- Lifestyle – Health
- Lifestyle – Entertainment
- Debt
NOTE: The one thing to keep top of mind is the lifestyle expenses, as this is where the majority of your ‘non-essential’ spending will go. What we’re looking at here is financial freedom, not financial abundance – what this means is that the goal is not to gain so much money you can spend on exorbitant luxuries, but rather to have enough money to live comfortably and securely.
➜ Related Post: If you’re not sure what the difference between financial freedom and financial abundance is, check out this post here: You’re A Lot Closer To Financial Freedom Than You Think
Once you have your total expenses down on paper, add them all, it’s to create a sustainable lifestyle where you don’t have to keep working. If you’ve followed the steps outlined so far, you should be left with a monthly ‘financial freedom number’.
To get a good sense of what that looks like on a yearly basis, simply multiply that by 12.
Figure Out How Much Passive Income You Currently Have
The next step is to figure out how much passive income you currently have.
A good way to do this is to do something very similar to the previous step, and list out all the sources of passive income you receive on a monthly basis. This can include things like:
- Rental income
- Dividends from stocks and bonds
- Interest from bank accounts
NOTE: For rental income, you want to make sure that it’s net rental income – that is, the income that’s left over after you’ve paid all your expenses like property taxes, insurance, maintenance and so on.
Once you have all this down on paper, add it up to get your total monthly passive income. You should now have both a ‘lifestyle expense number’ and a ‘passive income number’.
Figure Out Your Financial Freedom Number
Now that you have your lifestyle expense and passive income numbers, take your lifestyle expense number and subtract from it your passive income number.
The number you have remaining is your Financial Freedom Number – in other words, how much more monthly passive income you need to generate to cover all your lifestyle expenses and be financially free.
Now that you have this number, it’s time to start taking steps towards achieving financial freedom.
NOTE: If you’d like some help with this process, I’ve built a handy tool called the Financial Freedom Number Calculator. It comes complete with a mini online-training and it’s free to download here.
Step 2: Start Learning About Stock Investing
Now that you know the exact amount of money you need to make in order to achieve financial freedom, it’s time to start learning about stock investing.
Why I Pick Stock Investing Over Property
As someone who has invested in both property and stocks, I can tell you that at least for me, stock investing is far more suited to financial freedom goals than property. I won’t go into too much detail here, but as a rough overview of the major points, it’s because:
- Property investing usually requires much more capital to start
- It’s harder to diversify across multiple properties than it is multiple stocks
- Property isn’t liquid – you can’t just sell one room of your house within minutes to generate cash
- There’s less management required for stocks than for property – no need to fix broken toilets etc.
➜ Related Post: If you’d like a more comprehensive comparison between the 2 asset classes, you can read my post on it here: How Does Investing In Real Estate Compare To Stock Investing?
Learning About The 3 Overarching Methods Of Stock Investing/Trading
You need to start by learning about the three main types of analysis used for stock investing and trading: fundamental analysis, technical analysis and macro analysis.
- Fundamental analysis is the analysis of a company’s financials, looking at its fundamentals to determine whether it is a good investment. A good way to start learning about this is to check out our free 10 Must-Have Stock Criteria checklist.
- Technical analysis looks at charts and patterns to try to anticipate stock price movements.
- Macro analysis looks at the overall economic environment and how it may impact a particular company or sector. If you want to learn one of our secret tools for anticipating market crashes, check out our free 90-minute online masterclass.
Most people choose either fundamental or technical analysis – very little know about macro analysis or have even heard of it. Having experimented with all 3 of these methods, I’ve discovered over my career that the combination of all 3 produces the best results.
➜ Related Post: If you’d like to learn more about my journey and how I arrived at this conclusion, you can read about it here – Fundamental Analysis VS Technical Analysis VS Macro Analysis – Which is Best?
Learn How To Preserve Your Capital
Making money is the easy part of stock investing – the challenge is knowing how to preserve your capital and keep it out of harm’s way.
It’s important to have a risk management plan in place – that means understanding when to get out of a trade if it goes south, as well as when and how to allocate capital across different trades. It’s also useful to understand basic concepts like:
Learn How To Research And Execute Your Trades
Once you understand the basics of stock investing and have a risk management plan in place, it’s time to learn the step-by-step process for researching and executing your trades.
➜ Related Post: It’s not a difficult process, but I have written a separate step-by-step guide on how to do it which you can read here – How to Buy and Sell Stocks When You Are Just Starting (A Step-By-Step Guide)
Once you’ve got a good understanding of these, you are ready to move on to the next step in your journey towards financial freedom.
Step 3: Start Practising Trades With Small Amounts
Now it’s time to start putting your newfound knowledge into practise!
Practise Paper Trading To Get Familiar With The Brokerage Platform
If you’re completely new to the world of stock investing and trading, a brokerage platform may look very foreign and confusing to you, especially with all the fancy buttons, charts and options.
That’s why I suggest starting off with a paper trading platform (also known as simulated trading or virtual stock trading) – this is a type of platform that allows you to trade stocks without actually investing real money. This way, you can learn how the stock markets work without risking any of your own capital.
You don’t want to fall into the trap of being a ‘professional paper trader’ though – i.e. someone who has been practising trades on paper but never actually takes the plunge with real money.
To ensure that doesn’t happen, I recommend limiting yourself to only paper trading for 1 month max, just to familiarise yourself with using the brokerage platform – after that period, it’s time to move onto a small account and start building up your confidence.
➜ Related Post: Another reason why you don’t want to spend too long paper trading is because psychologically, trading virtual money just isn’t the same as putting real money on the line. If you want to read more about why that is, check this post out – Why Paper Trading Is Terrible For Practising Stock Investing/Trading
Build Up Your Confidence With A Small Account
Once you’ve been practising trades on paper for 1 month, it’s a good idea to build up your confidence with a small account – even if you have a lot of capital ready to deploy into the markets.
This means opening an actual brokerage account and depositing a small amount of money – the amount here is different depending on your circumstances and chosen investing/trading strategy. As a general rule of thumb:
- If you are passively investing, you can start with as little as $100 a month – this means buying stocks every month and holding on to them for the long-term.
- If you are actively investing/trading, you need to start with a minimum of around $10,000 to be able to properly diversify your portfolio.
➜ Related Post: If you want to learn why I suggest these different amounts for these different strategies, you can read about it here – How Much Money Do I Need to Start Investing or Trading Stocks?
The goal here is not to make outrageous amounts of money. Instead, it’s about building up your confidence by seeing real results from your investing and trading decisions. Focus on the percentage of your returns, not the dollar amount.
Once you’re starting to see more consistent returns and you’ve built up your confidence – which can take anywhere from 3-6 months depending on the markets and how much guidance and support you have along the way – it’s time to move on to the next step.
Step 4: Scale Up Your Account As You Become More Confident
Now that you’re more confident in your investing and trading skills, it’s time to scale up your investment account. You can start by increasing the size of your deposits – so if you used to invest $100 a month, try making it $200 or even $500.
If you’re actively investing/trading, you can consider scaling up the size of your total portfolio too. This means increasing the sum amount invested in your account by adding more money each month – so if you started with $20,000, try adding an extra $10,000 or even more.
As you do, your position sizes (i.e. how much of your portfolio you invest in each trade) should increase too. This way, you can make more money with the same amount of effort – it’s all about scaling up your returns as you become more experienced.
The goal is to get to a point where you are investing/trading enough to live off the profits – that’s when you’ll be financially free. Depending on your strategies and the amount of money you have in the markets, this may take a few years.
But if you stick to the plan and stay disciplined, it can be done!
Step 5: Learn How To Adapt Your System To Market Cycles
By the time you’ve scaled your portfolio and account with a working investing and trading system, you’re already ahead of most investors.
But that doesn’t mean you’ve stopped learning. I’ve been investing and trading the stock market for well over 25 years now, and I’m still constantly learning something new every day.
The next part of your stock investing and trading journey is to learn how to adapt your system to the different market cycles. This means understanding:
- when to adjust your position sizes
- when to be more aggressive in certain sectors
- when to take a more conservative approach
The market is ever-changing. What you do in a bull market (when everything is going up) won’t necessarily be the same as what you do in a bear market (when everything is going down). You need to learn and understand how to adjust your approach based on the current market conditions.
As a rough guideline, I always say it takes about 7-10 years to truly become an experienced and successful investor or trader – just because that’s around the timeframe it takes for the market to go through a full cycle of bull and bear markets.
But if you stick to it, the rewards are worth it – because that’s when you’ll feel completely in control of your financial future.
➜ Related Post: One example of the sorts of things you should be aware of is the interest rate and how that affects your stock investing and trading. If you’re up to this stage of things, you may be interested in checking out this post – How Do Changing Interest Rates Affect the Stock Market and Different Sectors?
Step 6: Accelerate Your Financial Freedom
Now that you’ve learned about the 3 types of investing, built up your confidence with paper trading and a small account, scaled up your investments/trades and you’re learning how to adjust to different stages of the market cycle, it’s time to turbocharge your financial freedom.
This is all about optimising what you already have working, and there are a few very simple things you can do to help with that.
Minimise Your Expenses
The more money you can save, the more money you have to invest in the markets. The trick is to look for every way possible to cut back your expenses. For example:
- See if you can reduce your lifestyle expenses – do you really need all those subscriptions to different streaming services? Can you save money by not eating out as much?
- Shop around for cheaper utility bills, telecommunication services, insurance policies etc.
A good way to do this is to take a closer look at the list of monthly expenses we discussed earlier. That way, you’ll be able to clearly see where the money is going and how much you can save by taking a few simple steps.
You’d be surprised how much money you can save just by doing this!
➜ Related Post: If you’d like a more detailed guide to saving and managing your money, you might find this post useful – How to Save Money in 10 Simple Steps
Maximise Your Income
If you want to reach financial freedom sooner rather than later, it’s important to look for ways to increase your income.
This could be through taking on a second job, freelancing, becoming an Uber driver or starting a side business. Another way would be to invest in property and use that as a source of passive income (if you have the capital).
Whatever you do, the aim is to increase your income so that you have more money to invest and accelerate your financial freedom.
Invest In Yourself With Mentors And Coaches
Lastly, I highly suggest investing in yourself. And the best way to do this is to find like-minded people who have already achieved success and learn from them.
I’m talking about mentors and coaches – those who can guide you through the process of investing and trading, help you develop specific skills, provide advice when needed etc.
Having access to this type of support can make all the difference, and it will help you reach financial freedom much faster. Personally, I’ve invested over $300,000 (to date) in mentors and coaches over my lifetime to help me with things like:
- Investing and trading
- Health and wellness
- Mindset and motivation
- How to start and grow a business
- Love and relationships
Not all of them were great. In fact, some of the people I’ve learned from were downright terrible – I once lost $100,000 following some sketchy advice from a so-called ‘guru’.
But some of them were absolutely brilliant and helped me to become the investor and businessman I am today.
So make sure you do your due diligence (i.e. research) and pick the right mentors and coaches to learn from. It’s a worthwhile investment that will get you closer to financial freedom much faster than if you try to go it alone.
➜ Related Post: If you’re unsure of how to pick the right mentor or coach for you, check out this post that goes over the key questions to ask before pulling the trigger: 11 Ways To Filter Out and Avoid Dodgy Get-Rich-Quick Type Seminars
Step 6: Pay It Forward To Others
This isn’t by any means a compulsory step to take, however, it’s something that’s deeply important to me and is the reason why I love teaching and writing about investing and trading.
Once you’re financially free, why not use your newfound freedom to help others in need?
Whether it’s by encouraging people to start investing and trading or giving back to the community through philanthropic activities, you can use your wealth to make a real difference in the world.
Plus, there’s something about helping others that gives you immense satisfaction and joy.
That’s why I’m a firm believer in the philosophy of ‘paying it forward’ – to give others the same guidance and advice that enabled you to achieve financial freedom so they too can benefit from it.
So if you’re lucky enough to become financially free, don’t forget to pay it forward and help others out along the way.
Conclusion
Wow! That was a lot of information to take in! So let’s quickly recap what we’ve discussed.
To go from complete novice in the stock market to becoming financially free, the 6 main steps are as follows:
- Figure out your financial freedom number
- Learn about stock investing
- Practice trading on a paper trading platform first
- Increase your income to accelerate the process
- Invest in yourself with mentors and coaches
- Pay it forward to others
These are the main steps and milestones you should take to become financially free through stock investing.
I hope you’ve found this article useful! Good luck with your journey and don’t forget to pay it forward when you reach your destination.
Happy investing!
Terry Tran
P.S. If you found great value in this post, please share it with your friends! They will appreciate you for helping them understand more about stock investing. Thanks! 🙂
P.P.S. If you’d like some more help with getting started on your journey, there are 2 resources that you may find useful:
- The first is our FREE 10 Stock Criteria Checklist, which helps you identify what I consider to be the financially strongest 1% of stocks in the market at any time in less than 5 minutes. Click here to learn more.
- The second is our FREE 90-Minute Online Masterclass, where I’ll show you how I personally anticipate market crashes in advance and prepare for them. Click here to learn more if you’re interested.
