4 Signs You’re Ready to Start Investing
Investing is great. But here’s what you should do first.
Are you ready to start investing?
It’s best to answer this question sooner than later. The earlier you start, the more you make — as long as your investments go in the right direction.
But risks aside, investing isn’t for everyone. Maybe you have a lot of debt. Maybe your savings are slim. In these cases, it might be wise to wait.
We spoke to two personal finance experts about which financial milestones you should check of your list before you begin. Here are four signs you might be ready.
Sign No. 1: You have a financial plan
A critical step to take before investing is creating a financial plan. Your plan should balance your budget and ensure that you meet debt obligations and save before directing money toward investments.
“[A] financial plan can assist individuals to knock out debt, all while capturing market returns,” said Jim Kirk, a financial advisor at Rocky Mountain Financial Solutions. “Working off a budget and prioritizing allocation to debt, savings, and investing can be a great start and help the individual begin their investment plan.”
But Kirk cautions that having a plan isn’t necessarily a go-ahead to start investing.
“Signs signaling an individual’s readiness to start investing come at different times,” he said. “There is no green light for investing.”
Sign No. 2: You have an emergency fund
An emergency fund is a must — it protects financial health. Experts recommend saving three to six months of expenses to cover unforeseen events such as a health issue or a job loss.
“If you have reached your emergency savings fund goal, and then you have passed the goal, you are definitely ready to invest with those excess funds,” said Logan Allec, a CPA and the owner of personal finance blog Money Done Right.
But parking all that money in a checking account won’t generate much of a return. Allec recommends putting some of it into smart investments.
“You want to diversify your savings beyond just an emergency savings fund, so you can make money off your excess money, and starting to invest is the best way to do this,” he said.
Sign No. 3: You got a raise
A salary bump is a smart time to start investing because it capitalizes on added income. Plus, you won’t miss the money you haven’t started spending yet.
“If you have a significant increase in income, you should automatically start investing 5-15% of the income in investments,” Allec said. “This is because the increase in your income would best benefit you by investing the money, so you are making additional money off of your increase in income.”
An increase in income is a smart time to update a budget. Don’t start spending until you’ve bumped up contributions to financial goals like an emergency fund, 401(k), and other investments.
“[I]t is much better to invest your new-found extra cash than to just blow it on random things and spend more than what you already have budgeted,” Allec said.
Sign No. 4: You’ve done your homework
Investing isn’t intuitive, but it can be learned. And doing your homework is important — money’s on the line.
“One of the most important signs to know that you are ready to start investing is that you have worked on educating yourself about investing,” Allec said.
To learn more about investing, join a course or read a book. There are many to choose from.
“Once you have a basic understanding of how investing works and you are aware of the risks and rewards associated with it, then you are able to begin to start investing in an intelligent manner,” Allec said. “You do not want to just play around and guess with your investments, as this can be risky, so you must be educated on how to do this the correct way.”
Investing is a key component of building wealth for the future. Before you start, make sure that your finances are in order by paying down debts and saving up an emergency fund. Then, start thinking about how to invest surplus money.
|Logan Allec is a CPA, personal finance expert, and owner of the website Money Done Right. After spending his 20s grinding it out in the corporate world and paying off more than $35,000 in student loans, he dropped everything and launched Money Done Right in 2017. His mission is to help everybody — from college students to retirees — make, save, and invest more money. He currently resides in the Los Angeles area with his wife Caroline and son Hunter.|
|Jim Kirk’s passion for finance began as an undergraduate pursuing a degree in finance, which included managing the university’s endowment fund. Kirk started his career as a financial advisor in 2007, which gave him a broad perspective about investing and wealth management. His experience was broadened by serving as a Wall Street analyst, investment banking analyst, manager of financial planning and analysis, and chief financial officer. To better serve clients, he obtained the CLU and ChFC designations, and currently operates under the Fiduciary standard at Rocky Mountain Financial Solutions.|