Five Smart Things to Do BEFORE You Start Investing
Style Magazine Newswire | 1/10/2018, 7:39 a.m.
Hoboken, NJ (January 2018)—You're young, you're eager, you're out in the workforce earning money, and you're ready to jump into investing full force. Or maybe you've been working for a few years but have been too busy getting yourself established (and yes, having a bit of fun) to get serious about preparing for the future. Either way, you've done a little homework and believe you're ready to pick an investment and put your money into it.
Not so fast, says financial expert and best-selling author Eric Tyson, MBA. Before you make any wealth-building investments, you first need to get your financial house in order.
"Before you think about investing, you need to have a good financial foundation in place," says Tyson, author of Investing in Your 20s & 30s For Dummies®, Second Edition (Wiley, 2017, ISBN: 978-1-119-43140-4, $19.99). "There's a natural order to managing your money and setting yourself up for a secure future. If you don't follow it, you can set yourself up for big headaches down the road—or at least fail to maximize your nest egg."
Tyson explains that most young people today have debts from lingering college loans or credit cards, and have little savings for unexpected expenses. Even though investing sounds like an exciting solution to financial wellness, you need to take care of a few other issues first.
Here are the five things Tyson says you should do before you start investing.
First things first: Set your financial goals. Do you have established financial goals that you're working toward? If not—and frankly, too many young people simply don't think this way—Tyson advises you to figure out your financial goals before you begin investing. Otherwise, you won't know how much to save or how much risk you need to take or are comfortable taking. Plus, there may be several goals you want to save for and that will affect your investing strategy.
"When I was in my 20s, I put some money away toward retirement, but my bigger priority was to save money so I could hit the eject button from my management consulting job and start my own business," says Tyson. "I kept the money I saved for the start-up of my small business, which was a shorter-term goal, safely invested in a money market fund that had a decent yield but didn't fluctuate in value.
"By contrast, my retirement was a longer-term goal, so I invested the bulk of my retirement money in stock funds," he adds. "If these funds fluctuated and declined in value, that was okay in the short-term, because I wouldn't be tapping that money."
Pay off any high-cost debt. This might be a bit of a no-brainer, but paying off any consumer debt you have, such as on a credit card or auto loan, should be your first priority. Consumer debts are charged a high interest rate (many 18 percent or more per year), which keeps the debt growing and can cause your debt to quickly spiral out of control. Tyson recommends reducing and eventually eliminating this debt—otherwise, it can be a major obstacle to investing and achieving your future goals.