6 Things To Do Before You Start Investing
Wondering if you’re ready to invest? You are six steps away from laying a solid financial foundation and achieving your goals.
1. Build an Emergency Fund
Life is full of surprises. Transmissions fail, bones break, and houses flood. Before 2020, who knew that pandemic pay cuts were a thing? Surprise! Everyone needs an emergency fund for surprising times. The fund should cover three to six months’ worth of living expenses, keeping your bills paid and food on the table.
2. Know Your Cash Flow
Are you making it rain, or is your well about to run dry? There’s a water metaphor for every financial predicament, so it’s important to know your cash flow. The math is simple: subtract your monthly expenses from your monthly income. If your expenses are greater than your income, develop a plan to cut back.
3. Pay Down Debt
It’s not necessarily the most glamorous option, but it makes sense to use discretionary income to pay down your debt. Pay off high-interest credit card debts and personal loans first. Some common types of “good” debt, including student loans and mortgages, shouldn’t stop you from investing. No one is asking you to wait thirty years to get started.
4. Track Your Net Worth
Net worth and chill, anyone? To calculate your net worth, add up the total value of your assets, which might include savings, retirement accounts, home equity, or personal belongings. Then subtract the total value of your liabilities, which might include a mortgage or other loans. That’s your net worth. If your finances are on track, your net worth will increase over time.
5. Define Goals and Priorities
Investing is a goal in and of itself. But before you dive in, think more specifically about what you hope to achieve. Do you want to supplement your salary? Retire by age fifty? Go on a world tour next year? Contribute to charity? Your own personal goals and priorities will help determine which investments are right for you.
6. Understand the Basics
If you don’t know a dividend from a dead end, don’t despair. There are lots of ways to invest, from mutual funds to real estate. Some of them are sure to align with your goals. Explore websites aimed at beginners, sign up for a free webinar, and don’t be afraid to ask questions. It’s time to take control of your money -- you’ve earned it.
