One year ago, my husband and I paid off over $80,000 of debt. (You can read our Debt Free Story right here.) Now, we are one short month away from having our fully funded emergency fund. Then – FINALLY! – we will be strategically investing more for retirement. After doing a ton of research, I’ve learned there are a few things to do before you start investing.
There are so many resources out there to help beginning investors like myself. I’ve scoured the internet and countless books, and almost all of them recommend their readers to knock a few items off of their financial to-do list before they begin seriously investing. Without further ado, here they are.
Number One – Know Your Goals
Before you can make significant progress you have to know where you want to go in life. Take some time to sit down and write your financial goals for the next month, and the next year. Where do you want to be in ten years? What can you do TODAY to help you get there?
Number Two – Be in Control of Your Budget
You have to control your money, or it will control you. By setting and sticking to a budget, you can make sure you use every dollar wisely. You can read my post 8 Steps to a Budget that Actually Works if this is something you know you struggle with. Making a plan for you money will ensure you don’t waste it. And before you know it, those financial goals will start coming true!
Number Three – Have a Plan to Pay Down Debt
There is no getting around this one. The amount of debt most Americans live with is staggering. Debt can cripple your family’s financial future. It must be dealt with if you plan on getting ahead in your finances. I don’t know about you, but the only interest I want affecting my financial future is the compound interest I am earning. Not the high interest rates that must be paid because of debt.
Until you have a plan to pay down your debt, I would hold off on investing. It makes no sense to invest $200 to earn 8% interest when you still owe $200 and are paying 18% interest.
My family decided to pay off all of our consumer debt except for our home. That doesn’t mean that is the best choice for you. But it does mean you need to have a plan. And you need to get started paying down your debt. If this is something you would like to know more about, here is the step by step plan my family used to pay off our debt.
Number Four – Build Up an Emergency Fund
Once your debt is taken care of, you must provide for your family in case the unthinkable happens. Most families are one emergency away from financial ruin. A job loss, a car accident, a major illness.
How long could you pay your bills if you were suddenly unable to work? It is important to prepare for this so that if you find yourself in the middle of an emergency, your investments can continue growing. Anything withdrawn early (before age 59 ½) is subject to taxes and a 10% penalty. Not good! Build up your savings so your investments can stay in place until you retire.
Experts suggest saving anywhere from 3-6 months of bare bone expenses. You can read about my family’s journey to an emergency fund right here.
Number Five – Do Your Research
Your greatest asset is knowledge. Do your research. Read books from experts. Interview others who have been successful with investing. Here are 5 must-read books every investor should read. Make sure you know what you are doing before you start investing.
Don’t blindly trust what your buddies tell you to do. Don’t act on something spur of the moment. Don’t settle for an investment if you don’t feel peace about your decision. Educate yourself before you act.
Well, there you have it, friends. Once you have a good handle on these action steps, you are ready to start seriously investing for your future. There is so much to know about investing before you actually begin. But don’t let that intimidate you! One thing at a time.
Check off these five things. Educate yourself while you are working on them. Then dive into learning which investments will be right for your family. Before you know it, your family will be well on their way to a solid financial future.
Take a deep breath. You CAN do this! One thing at a time, friend. One thing at a time.
What about you? Is there anything you wish you had done before you started investing? Does anything hold you back from starting to invest on your own?
Interested in ready more about Investing? You might want to check out some of these posts.