Here are the steps you should take to determine how much money you’ll need to trade for a living and put that money together.
Define Your Goals
Before you can develop a concrete plan to trade for a living, you need to know your income goals. A good place to start is with your current salary, since you know you can live on it.
Of course, you’ll likely want to shoot for a higher income level, especially given the financial risks you’ll be taking on as a professional trader.
After all, sometimes the stock market won’t comply with your goals. Markets move in cycles so your account value could in boom times look spectacular and during recessions look downright gloomy but your income needs are predictable and steady.
Keep in mind, however, that the higher your income goal is, the larger the amount of investment capital you’ll need to reach it.
Calculate Your Monthly Expenses
While knowing your income goal is important, you also need to have a handle on how much money you absolutely have to make to cover your expenses on a monthly basis.
Tally up every expense you incur in the course of an average month, including food, bills, loan payments, rent, fuel and recreational expenses.
Your final number should also include some room for incidental expenses, such as buying gifts for family members at the holidays.
Once you know how much money you need each month, you should save up enough to cover those expenses for 6-12 months. This way, you’ll have a buffer and not feel pressured to make a reliable living from your trading right away.
The money you save for expenses should remain separate from your trading funds, since it should never be risked in the market.
It might initially seem overwhelming to “do the math” yourself but the good news is you can outsource the number crunching to an app like Mint, or YouNeedABudget.
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Take Stock of Your Assets
Now that you know how much money you need to make, it’s time to figure out how much trading capital you’ll need to realize your income goals.
At this stage, it’s extremely important to maintain a realistic view of your potential returns over time. Keep in mind that Warren Buffett, arguably the most successful living investor, amassed his enormous fortune by averaging returns of 20.9 percent annually for over 50 years.
Given this fact, a probable best-case scenario would have you making about a 20 percent return on your investment annually.
Working with this scenario, you can quickly see how much you would need to hit your income target.
If you wanted to make $60,000 per year trading, for example, you would need a minimum of $300,000 of investment capital. Don’t forget that 20 percent returns are an ideal scenario, so the amount will likely be quite a bit higher.
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At this point, it’s worth pointing out that there are a small handful of day traders who make can make 15 percent or more monthly. For traders who can manage this kind of return, the starting capital required might be as low as $30,000.
However, these traders are in a tiny minority and can rarely sustain such gains over the long haul. So, if you want to maximize your chances of success and establish a long-lasting investing career, you’re likely far better off to begin with more money and shoot for more conservative and realistic returns.
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Save Extra Money
If you don’t already have the amount of money you need to start trading professionally, you’ll need to save up some extra cash.
You can do this simply by reducing your spending and putting more of your income into savings. Depending on your current financial situation and how much you have saved back already, though, it may take quite a while to save your way to the sum you need.
Acorns in particular is helpful because it helps you save as you spend by rounding up loose change to the nearest dollar and invest it.
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Another option you may want to explore is to find a second source of income.
While this second income stream could be a part-time job, you may find it more lucrative and rewarding to branch out into a side gig of your own.
By renting a house out through Airbnb, driving for Uber and Lyft, offering freelance services online or delivering food with Doordash, you can make up to several hundred extra dollars per month to put toward your trading.
Developing a second income stream now may also prove to be useful in your first few months of trading professionally, since it will give you the ability to make a bit of extra money when you need it without having to maintain a regular job.
Pick a Leading Stock Broker
Finally, when you have the money you need and are ready to begin trading, you’ll need to pick a 5-star broker.
When choosing a broker, look for one that offers low commissions and fast, accurate order execution, since these two factors will be absolutely essential to your trading success.
Your broker should also offer a variety of tools for analyzing and structuring trades. Finally, you need to find a broker with great customer service and support, as you need to be sure that you will receive adequate help whenever you reach out with questions or problems.
thinkorswim and tastyworks are among the leading trading platforms when it comes to price, tools, order execution, and customer support.
If you plan to be glued to your screen all day every day, thinkorswim has better tools. But tastyworks shines with streaming content throughout the trading day from top traders who have long histories in stock, options, and futures trading.
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Biden's not holding back... He's warned you that he plans to raise: Income taxes, death taxes, capital gains taxes & corporate taxes. Some or all of which WILL affect you or your family in one way or another... But it's not too late... yet.
Thousands of Americans are getting their FREE IRS LOOPHOLE KIT to discover the secret to protecting your retirement savings from Biden, and inflation...
CLICK HERE to request a FREE Copy of the Guide To IRS Loopholes For Your IRA/401(k)
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