The following is a paid blog post:
People know that they have to save and invest their money in order to have a retirement fund. And since most people do not plan to work for their entire lives, investing and retirement planning has to be done relatively early on in life. On the other hand, paying regular everyday expenses can be ridiculously tough. There are scholarships available at Maryville University if you do well in an accounting degree online program, but what happens after graduation? You can set up a 401K with your job, but will you have enough left in take-home pay to invest funds independently? Here’s how you can tell when you are able to begin investing steadily and safely.
You Aren’t In Severe Debt
Whether you fail to curb your spending, use credit cards to make all of your purchases, or simply got in over your head financially, people who are in debt really don’t need to look at investment accounts. Sure, you could start speculating on the rising price of Bitcoin and make a lot of money fast, but if your financial priorities aren’t in order, you’ll end up doing the same thing again. Get out of severe debt before you try to invest actively.
Small Investments Are the Way to Go
Invest the same amount of money a month over the course of a year and you will have a healthy portfolio. Some folks get investing all wrong when they decide to use large chunks of cash to float their portfolios. Figure out how much you can spare each month and have that same amount automatically deducted and added to your stock market or investment account. You can always decide what to do with the money later, but once it’s been allocated for investments, you will make better decisions.
You’ve Met Other Life Goals
Do you own a home? Is your car dependable and almost fully paid off? Do you have an online bachelors degree in accounting and are your student loans under control? If you have barely enough food to get through the week and you’ve got to actively check your bank account to see how much gas you can put in your car, you aren’t in a position where you can start investing yet. Remember that the safest and smartest way to invest entails diversifying your portfolio and making steady deposits. You can’t do that if you are struggling to just get through from month to month.
Those who start investing and saving for retirement while they’re still in their 20’s can put up around 5% of their salaries and live well in their golden years. For people who wait until their 30’s to start investing, it’s around 10 to 15%. After 40 years of age, you’re looking at putting up around 20% of your take-home pay into an investment account if you want to retire with a nice nest egg. Think about those numbers the next time that you go out to eat or buy something you don’t need, and ask yourself if you have your priorities straight.
16 thoughts on “How Can You Tell When You’re Ready To Start Investing?”
This is a well thought out approach. My philosophy would be to make more than I spend, pay off debt first, then start investing through a dollar cost averaging program a little each month. I think I’m basically saying the same thing as the guest writer. Tom
Tom @ Dividends Diversify recently posted…I’d Like to Introduce You to the Johnsons
It’s an approach that I have been using for many years. As you know, I invest every single month, whether a small amount or large, as my main goal is to remain consistent with my buying. This way I can dollar cost average into every position in my portfolio and grow my passive income stream over time. Of course, this is all done being debt free. Thank you for stopping by and commenting.
Great Post. I totally agree with the concept of taking care of other essential items prior to investing. The money that you can afford without needing for foreseeable amount of time, is the money ready to be invested. That obviously eliminates the idea of going in debt to invest. Good work.
A while back the term ‘risk capital’ was often used to describe money that one should use for investing. It didn’t matter what you invested in, the idea was that any money you put aside for investing should be considered ‘gone’ and therefore not in the same boat as money used for essential expenses like rent/mortgage, health, food, etc. Thank you for sharing your thoughts.
Yeah I’ve known some people that were putting money aside for investments, but carrying huge debt on their credit cards. Any investment gains you’re getting are easily cancelled by those high fees.
You must be aware of the in and out with any financial picture. Clearly, paying interest on huge credit card debt erases a lot of the advantages of long term investing in dividend paying stocks or most stocks for that matter. You need to look at all the pieces of your financial puzzle before making any investing move. As always, I appreciate your comment.
Nice post – thanks for sharing. Agreed with Tom’s comments above.
The last section (other life goals) resonated with me the most. It can be challenging as you encounter additional responsibilities or needs/wants in life. We did a bit of the opposite our first 7-8 years of working: we save 20-25% of our income for retirement and neglected everything else (no emergency fund, no short-term savings, etc.). It was kind of stupid looking back.
Mike @ Balanced Dividends recently posted…Tax Reform & Your PFUI: Applying the 10 Heuristics
Hindsight is always 20/20. I wouldn’t be too hard on yourself. You did what you thought was financially the best at the time. At least you managed to save a nice portion of your income when others saved nothing and spent more than they brought in. So you didn’t have an emergency fund or other short term savings. You still managed a respectable savings rate and looking forward are seemingly on the right investment track. Thank you for stopping by and commenting.
Good read, couldn’t agree more: start investing as early as possible and put money to work regularly. These small amounts will add up and reward you handsomely over time. Whenever possible, reinvest dividends. Dollar cost averaging and diversification will mitigate risks and just let the compound effect work for you.
Your comment reads like the “DivHut Investing Handbook.” 🙂 I totally agree that taking advantage of time in the market and being consistent with your investing, no matter how large or small the amounts, can pay off big over time. Let math (compounding) take hold of your portfolio and put the odds of success in your favor for the long term. Thank you for stopping by and commenting.
I think debt is a bit part for sure especially if it’s high interest debt. Hard to beat paying off 6% student loan debt as an investment in your future.
I agree that one should manage their debt and bring it towards a manageable level, whatever that may be for the individual before throwing money into the stock market or any other investment for that matter. Just something to consider. As always, I appreciate your comment.
I generally don’t recommend people who know next-to-nothing about the markets to start investing. Otherwise you’re pretty much going in blindfolded, and entirely dependent on sheer luck.
I think it’s a good idea to spend e.g. 3 months understanding the basics of investing and finance.
Troy @ Bull Markets recently posted…The stock market’s overbought momentum is a bullish sign
No doubt, the more knowledge you have with anything the better equipped you are to handle any situation that may arise. While it’s important to be well versed with investing basics you should also not fall prey to ‘analysis paralysis’ and be fearful and potentially never start investing. Thank you for sharing your thoughts.
Great post and I completely agree. I’m a huge fan of small investments go a long way. That’s the approach I take. I invest the same amount of money every month into my dividend portfolio. Now, that it’s a new year, I’ve increased that amount of money and plan to do so every year until I retire.
Dividend Portfolio recently posted…December 2017 Dividend Income Report
Looks like we have the same investing approach. Keep buying regularly and those small investments can really add up over time. The power of consistency. Thank you for commenting.