Have you reached a point in your life and finances where you feel stuck? The feeling that your full-time paycheck just isn’t going to cut it? It may be time to start considering investing your extra money in something that can generate returns for you. However, before you can really decide if you are ready to invest, you need to make sure certain financial requirements are met.
The CGS Team is going to help you determine if you truly are ready to invest! We are sharing certain financial must-haves that should be taken care of before you start investing.
First thing’s first, your debts must be paid prior to you investing. If you are thinking that you will invest to earn money to pay your debts quicker, we recommend a different way of thinking. While ultimately that sounds like a great idea, any type of investment can result in a loss. The last thing you want is to invest your debt payments and lose it. It may be a slow process, but making sure your debt is paid off before investing will make you a lot more comfortable with the risk.
We have stressed the importance of emergency funds in plenty of other articles, and it still holds true before investing. An emergency fund is designed to help you financially in times of need. Whether your car breaks down or you lose your job, an emergency fund will be your support net. Since investing money is a risk, making sure you are taken care of regardless of the outcome of your investments is a very wise move.
If you aren’t already contributing to a 401k or IRA then make that a priority over investing. Some people actually invest to set themselves up for retirement, but if your employer has a matching program then it’s a no-brainer to contribute to your 401k first. To take the most advantage, contribute up to what your employer matches. After that is taken care of, extra money can go towards investing through your own brokerage account or additional IRA. Read 8 Things to Know About Your 401k Plan if you haven’t started saving for retirement.
Do you have short term financial goals that take precedence over investing? Save to knock out those goals and then start investing. Since investing can take some time to see a return, focusing on the short term goals with your own savings would be the best option. If you have long term goals, investing can help you knock those out. Since you aren’t in a rush to take care of the long term goals, any gains from investing that you receive in the meantime can go towards them.
Knowledge & Expectations
Becoming knowledgeable and setting expectations is a very important step before you start investing. Start researching stocks, bonds and mutual funds. Understand each form of investment so that you can make the best financial decision when you are ready. Check out the article Finance 101: Investment Types to get yourself familiar with the different kinds of investments. Investing takes time, energy and knowledge, so start understanding the market before you begin investing.
You also need to set some expectations about investing before you begin. Understand that the market is volatile. This means that it can go up and down quickly. With that being said, you must keep calm when your investment goes up and remain even calmer when it goes down. That sounds easy, but if you’ve invested a large amount of money it’s difficult not to be attached to it. Give yourself time to reap returns. Don’t start investing to receive a return within 2 days. Focus on the best investments that can yield the greatest results over time.
Brokerage Account or Broker
You can’t begin investing without a brokerage account or a financial broker. A brokerage account allows you to make your own investments when you please. When you have a broker, they typically do the legwork for you and charge a hefty commission. It may be best to start with a broker to get some advice and experience with trading before you do it yourself. On the other hand, some people learn best when they just do it themselves. Check out the Shopping for a Brokerage Account article to read up on everything you need to consider with opening an account or using a broker.
Once you have taken care of all the items listed above, you are ready to start investing! Don’t be afraid to take the plunge. Start slow and work your way up to financial success. We wish you the best of luck in your investments! Do you already invest? What do you think of the financial requirements that should be met before investing? Share your thoughts and experiences with the group by leaving a comment below!