8 Smart Wealth-Based Items to Help You Know When You’re Ready to Invest

When to Start Investing

Lots of people get excited about investing – seeing the returns people are able to make and knowing you can relax during retirement (or even just actually retire) is exciting. So let’s make sure you’re ready to invest. There’s 8 items to consider before you start investing. It’s a good idea to be in a good position when you start investing so you’re not tempted to pull your funds out of your investments because your financial life wasn’t really in order. So here we go!

Pay Off Your High-interest Debts

If you have high-interest debts (like credit card debt), probably 8% or above, then those debts should be paid off before you start investing.

Here’s a general example of why I recommend this. Say you’re paying 15% interest on your credit card debt and decide to start investing in the stock market before the debt is paid off. Over time the average return on the stock market is 8%, so basically, if you’ve invested in the stock market instead of paying off your credit card debt, you’ve just lost an extra 7% instead of gaining 8% because you’re still paying on your credit card debt at 15%.

So let’s make sure the high-interest debt is taken care of first.

Have a Cash Emergency Fund

If you don’t have any extra cash on hand if something goes wrong, you’ll be hurting and look to cash out your investments. There’s car problems, pipe bursts, furnaces that go out or any number of unexpected problems that can come up at anytime.

The key is to be able to dip into your cash emergency fund to take care of these items, not cash out your 401k and have to pay fees, not to mention what you could have gained by leaving your money invested. It’s been recommended to have at least 3-6 months worth of your salary in a savings account,CD or something that can be easily liquidated.

So make sure you’re paying yourself first and putting that money into a savings account so you can rest assured you’ll be able to handle emergencies.

One of my favorite financial books is, Owning the Power to Control Your Destiny, by Suze Orman. She does a great job going over savings, plus lots of other great financial guidelines. You can check out my book review here.

Never Invest Without a Purpose

You can start investing a Roth IRA, but if you’re saving for a down payment on a house, you’ll want to pull that money out before your retirement age, so investing in a Roth IRA may not be your best option.

Know what your goals are for investing. Are you investing for retirement? For buying a house? To finish your basement? To have peace of mind that your family will be taken care of, or they won’t have to worry about taking care of you, down the road?

Depending on what your financial goals are, it will make a difference on which investment tool would be best for you to use, which takes us to the next item to consider before you actually start investing.

Know What Your Investment Options Are

There’s lots of different investment options out there. Knowing what your investment options are will make it easier to decide what you should be investing in. Here’s a few options (and if you want more details about what to invest in, you can view my post about them here.

    1. 401k / Roth 401k – this is something that is usually offered by your employer. If they do a match on the 401k, I highly suggest at least investing the percentage they will match, it’s like free money.
    2. IRA / Roth IRA – You can open one of these up through a number of financial investment companies. Vanguard is who I use and I would highly recommend them. They have great options and low fees.
    3. Stocks – You can set up your own brokerage account to purchase stocks directly (I use CapitalOneInvesting.com, you can use my referral link to get $50, if you’d like). Investing in stocks can be risky, but usually the longer you keep the stocks, the higher your return (of course, this isn’t always the case, but it’s an investment option to consider).
    4. Real Estate – Purchasing properties for rentals or to flip is another great option for investing. One of my personal favorites.

There’s lots of different ways to invest. Looking at your goals, you can determine which option(s) would best accommodate your goals.

Utilize Online Banking

This may be obvious to some, but I just want to make sure everyone realizes how much easier it will be to invest if you utilize a bank or credit union where you can set up automatic online transfers.

Just being able to transfer money to your IRA or brokerage account is great, but if you can have an automatic monthly transfer, you won’t be as tempted to not continually invest. If you set up an amount to automatically transfer each month, you won’t have to worry about manually transferring money over and you can utilize dollar cost averaging. (Essentially prices will fluctuate and if you’re not investing one lump sum each year, but a select amount each month, the highs and lows of the purchase price will average out over time.)

Most banks do automatic transfers, but let’s just be sure. ?

Ability to Control Your Spending Habits

It’s a lot easier to invest when you have control over your spending habits. If you have the control to not impulse buy you’ll be able to save more money to invest and reach your goals even quicker.

This isn’t meant to be taken as a negative. It’s NOT about not being able to buy things you really want (and can afford), it’s about watching what you’re spending on frivolous things that don’t mean much to you. That drink from the gas station or going out to lunch instead of eating the lunch you brought. You’ll be surprised how quickly these little, unimportant things will add up. I’m talking about things you don’t even think twice about after buying them, meaning their importance level is very low. These are little things you just throw into your cart at the grocery store that weren’t planned for (or needed). It’s the thing you buy that you can’t even really remember what it was you bought. Those are the purchases I’m talking about.

Being able to control your impulse buys will generate quite a bit of money that you could put toward investing to reach your goals.

Keep a Good Social Circle

Also, associating with those that aren’t money conscious, is another thing to consider. We may have our goals and want to invest, but we are greatly influenced by those we spend the most time with. I’m sure you’ve heard the saying, ‘We are the average of the 5 people we spend the most time with.’ Are the people you spend the most with bragging about what they just bought or constantly shopping? Do you feel like you to need to keep up? Be aware of who you are surrounding yourself with and if they have wise financial habits.

Just to give an example, I had some friends I’d go clothes shopping with and they would constantly tell me to buy something even if it wasn’t really what I was looking for and especially if they were buying something. They’d want me to spend more money so they would feel better about their purchases. Most of the time, I had the willpower to not purchase something unless it was something I really wanted/needed, but there were times that I caved and regretted the purchase later. Just be aware of your social circle and the influence they have on your financial habits.

Focus on Your Net Worth

Focusing on your net worth is more important than just looking at the balance in your checking account to see what’s leftover that you could go spend on something unimportant. Get your mindset to increasing your net worth; this will give you a lot more money to invest. Your net worth is essentially adding up everything you own – house, car, jewelry, anything valuable that could be resold – plus the balances in your savings and checking accounts and any investments then minus any debt you have – credit card debt, mortgage, student loans, medical bills, etc. This is your net worth, the number you want to focus on. You want to continually increase this number to reach your goals.

Hopefully these 8 wealth-based items give you an idea on if you’re ready to invest and if not, what you can start working on to get ready to invest. What did I miss? I’d love to hear in the comments below!

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