If you’re not taking steps toward planning for your future, you may be shocked to learn that you’re already wasting valuable time. It’s never too early to start investing, but it’s also to easy to become complacent if you feel you’re not quite ready to make that big step quite yet.
While you are still establishing your financial plan and your career trajectory, you very well may not have enough liquid capital to make a deposit and get started officially. However, that doesn’t mean that there aren’t certain foundational habits and things that you can do in the meantime. These habits and proactive approaches that you can take now will assure that you will be fully prepared and knowledgable when the time comes. It’s all about planning.
Establish or evaluate your budget
Before you start investing, it’s essential to get a handle on your money. You need to know exactly how much you have coming in and going out. While it’s simple to save for and track the significant expenses, like mortgages and insurance, you also need to pay attention to the everyday items that you’re buying. That cup of coffee, extra grocery store run, and online shopping adds up quickly.
Figure out exactly how much extra money you have coming in. Once this is done, you will be able to see where you can save more to have some to invest. It’s important to include and track everything, so you have an accurate picture of your finances.
Pay off your high-interest debt
The next thing that you should do before investing is to pay down your high-interest debts, such as credit cards. The longer you hold on to that debt, the more money you’re throwing away on interest. You will end up paying more in interest than what you may gain in returns on your investments. In the long run, you will end up losing money. Additionally, if you were to default on these loans in the future, it could greatly negatively impact your credit score.
If you’ve done your budgeting, you will be able to add this in and figure out how long it takes to pay off this debt. You will have a clearer picture of when you’ll be ready to start investing. During this time, it’s crucial that you don’t incur additional debt. Your budget will help you with this as well.
If you have low-interest debt, such as your mortgage or school loans, it makes sense to pay these off over time. These sums can often be too high to tackle in a short amount of time, and won’t cost you as much extra in the future.
Make sure you have enough savings
Unexpected things come up, so it’s important to have some savings to help take care of these events. Your savings should take precedent before you start investing. You never know when you may need this money, or how quickly you may need it to be accessible in the future.
Most experts advocate having six months’ worth of expenses. While this is a good goal, you don’t necessarily need all of it before you start investing. You could instead build this amount into your monthly budget to make sure you get there. What you should have is at least enough to take care of small emergencies or your regular living expenses in the event of an unexpected job loss. Not sure how much you need? Try this handy Emergency Fund Calculator. Any savings beyond what you need, you can continue to build while you invest.
Take advantage of employer matching 401K plans
Even if you have high-interest debt or a low amount of savings, if your employer offers a matching 401K plan, take advantage of it. This is virtually free money for you to invest along with your own.
So you’re ready to invest
– If you’re in your 30s, the best places to invest include your workplace 401K, a Roth IRA, stock funds, real estate, and yourself. This decade is the best time to start planning for retirement if you haven’t already. It’s also an excellent time to buy a house or take classes to increase your salary. If an advanced degree would earn you a higher salary, it’s a good time to take that leap.
– If you’re in your 40s, try to increase your contribution to your retirement fund. It’s an excellent time to up this to make sure you have enough to retire. It would be best if you leaned more toward lower-risk bonds and fixed investments.
– If you’re in your 50s, look into additional income streams from your investments. Shift some of them into higher dividend-paying stock and bond funds. This can help you acquire some more spending income for your retirement.
Investing is something that you will be doing for your entire life. Once you get things in order, start as soon as you can. Planning for your future is imperative, and with a little bit of self-discipline and the steps above, you will be able to not only enjoy life when a clear financial plan now, but also be more comfortable during your retirement.