When Should You Start Investing?
You’ve got the job. You’ve got the house. And your savings are burning a hole in your bank account.
You can keep saving. Or you can start investing. What’s the best financial decision?
Or maybe that’s not you. Maybe you’ve been scraping by financially for the past little while and you’re wondering when or if you should be trying your hand at the stock market.
Many Americans know that saving for retirement is a necessity. But getting a straight answer to questions like “When should you start investing?” or “What should you be investing in?” is like pulling teeth.
If you’ve been wondering about this recently, you’ve come to the right place. Keep reading to see our list of four signs that you’re ready to start investing in the stock market.
You’ve Got an Emergency Fund
Depending on who you ask, it’s impossible to save too much money. According to some, your savings are on track if you’ve saved your annual salary saved at 30 and triple your salary at 40.
But for many people, those numbers aren’t just unrealistic — they’re downright impossible to achieve. And if you wait until you’ve got triple your salary saved, you might never get around to making financial investments.
That being said, life can come at you fast. You never know when the brakes might need replacing or when the fridge might suddenly decide to give out. For these sudden, I-never-saw-this-coming set of expenses, it’s important to have roughly three-to-six months’ worth of expenses sitting in your account.
If you’re ever between jobs or in need of immediate cash, this financial cushion can make all the difference. So much so that it’s a good idea to establish your fund before you start investing.
You’re Covering All of Your Monthly Expenses
Imagine being in a position where you’re making $10,000 one month, $2,000 the next, and $0 three months later. When your finances are basically in a constant state of feast or famine, it becomes a lot harder to be consistent with your investments.
If you’re hoping to become a traditional employee, steadying your income might be as simple as finding a new job. For those who are self-employed or paid commission, however, the answer might be that you need to build a slightly more robust emergency fund.
It goes without saying that you don’t want to be giving up your groceries or your rent to invest. Stocks and bonds can be harder to liquidate in part because they’re supposed to be long-term investments. But when you’ve got bills to pay and an invoice you’re waiting on, you don’t need money in 20 years — you need cash right away.
For this reason, it’s often recommended that you get yourself into a good place financially before you start making investments. Once you’re paying your rent and covering your necessities comfortably, you’ll be in a better position to invest.
You’ve Mostly Taken Care of Your High-Interest Debts
According to ValuePenguin, Americans collectively owe over $800 billion in credit card debt. But for most people, the principal amount isn’t the biggest issue:
It’s the interest rates that are eating into their disposable income.
On average, the stock market returns about 10 percent each year. And while those returns can be enough to outpace inflation and fund your retirement, your market returns are unlikely to beat out the interest rate on your debt.
Between student loans and mortgages, it’s unrealistic for most people to become debt-free before they start investing. But if you can consolidate your debts and pay off that credit card, you can gradually start putting more money into the stock market — without losing your net worth to high-interest debts.
You Have a Solid Financial Plan
Have you ever worked at a company or been friends with someone who had a bad case of Shiny Object Syndrome? Chances are that it was tough to figure out what was happening that week.
And making longer-term plans for the rest of the year? You could forget about it.
Most people understand how short-term thinking can destroy a company or make it difficult to maintain a consistent relationship. But yet many of these same folks are constantly changing up their financial practices.
When it comes to investing, you need to be in it for the long haul. That goes for both the monthly amount you’re putting in and the investment strategy you opt to take.
Investing in alternatives is one way that you can build high-interest momentum with your investments. However, many people prefer investing in indexes or precious metals, and they’re able to do just as well. In many ways, the key to successful investing is consistency.
If you haven’t created a plan for your savings or your monthly finances, you might not be ready to make regular contributions to your investments just yet.
When Should You Start Investing?
For a lot of folks, investing is a subject that’s generally only discussed by the accounting department or folks who are otherwise near retirement. But the reality is that there is no “best age to invest”. The decision of when to start investing your finances is affected more by your financial situation than your age.
That being said, the earlier you invest, the better your market returns are likely to be. So the answer to the question, “When should you start investing?” is “As soon as you feasibly can!”.
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