Shouldn’t I already be investing?
Perhaps you’ve been asking yourself this question but have been unable to settle on an answer that you’re comfortable with. If so, you’re not alone… Many people push investing to the back burner because they’re unsure where, when, or how to begin building their nestegg.
In fact, it seems that many people want to start investing, but simply aren’t ready to take the plunge. And even if they are ready, they have no idea where to start. In this article, I’ll be focusing on the issue of readiness.
The obvious answers
Many people aren’t comfortable tying up their money in long term investments until they’ve met a couple of key milestones.
- Consumer debt is paid off. Getting rid of your high interest consumer debt should be high priority. It’s probably best for you to forget about investing until your most burdensome debt obligations are met.
- Liquid savings buffer built. Having ready access to money when you need it is always important. Make sure you have a comfortable amount of money set aside in a high interest savings account before you begin investing.
While debt reduction and emergency savings are certainly important considerations, there are other important factors to consider.
Other factors to consider
- Age. While there is no ‘one size fits all’ age to begin investing, the sooner you start, the sooner compound interest can begin working for you. Optimal investment vehicles and portfolio allocations will differ depending on age, so be mindful to choose age appropriate solutions.
- Matching funds. Does your employer match your 401(k) contributions? Are you fully vested in their contributions right away, or on a graduated scaled based on years of service? If they do offer a match, this should only speed your decision to contribute.
- Children. If you have kids, you might be tempted to begin saving for their education, but you shouldn’t put this ahead of retirement savings. Instead, you should consider consistently putting 15% of your income toward retirement investments prior to saving for education.
- Job status. How stable is your current source of income? If you have a stable job and solid savings, you might feel more comfortable locking up a portion of your income in retirement accounts. If your situation is more tenuous and you may be let go tomorrow, you should build a larger emergency fund.
- Marital status. If you’re considering a move into investing and have a significant other, be sure to include them in the decision making process! When married, these long-term decisions affect both spouses equally, so be sure to communicate and decide accordingly. The best decisions are usually made together.
- Insurance policies. It is important to carry the proper types of insurance at each point in our lives. A decision to invest should not be made without balancing our investment strategy with situation appropriate insurance coverage. Health insurance, disability insurance, long-term care coverage, and life insurance coverage are all important and need to be considered alongside any decision to invest.
While there are certainly other factors to consider before making the decision to invest, this list should provide a good foundation and get you started in the right direction.
When making important financial decisions, always move slowly, ask question, and consider as many contributing factors as possible. You might even consider consulting with a professional advisor for feedback.
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