Up until this point, your knowledge of investing has probably been limited to the permanent stock market app on your iPhone. Not so fast. As you begin to settle into adulthood and your nights out clubbing become fewer and farther between, this is the time to ask the serious questions on how you intend to plan for your future. While many of us brush off investing because of the complexity it takes to get started, it could be costing us hundreds, if not thousands of dollars. Money loses value over time due to inflation, so if you do nothing with your $100 bill today, that money will be worth less in the foreseeable future. To account for this discrepancy, investing allows you the possibility to increase your net worth with very little work. In other words, you’re making your money work for you.
Although I am not a financial advisor, these are the tips I’ve picked up after working with one and following the advice of notable financial experts. If you’ve begun to question whether you’re doing all that you can with your hard earned worth, check the boxes to see if investing fits your lifestyle.
You have money to spare (outside of the money used for emergency funds to cover 6 months of your required bills).
Even if you have a large sum of money in your bank account, you need to prepare for the worst of the worst before you consider investing. That is, you have enough accessible cash saved up in case you were to lose your job or experience a family emergency. Ideally, this amount would cover your essentials for six months. Essentials including your rent, gas and electric bills and grocery expenses. Sorry, Netflix membership doesn’t make the cut.
You’ve paid off the majority of your debt
Paying off your debts should be your first and foremost goal with extra income. This includes but is not limited to: student loans, credit card debt and car payments. If you’re still able to save more than 25% of your income each month and have an emergency fund established, consider paying a lump sum to fulfill your loan requirements to limit the amount you pay in additional interest and then begin creating your investing roadmap.
You know your risk tolerance
The appeal of investing is that you have the opportunity to bring in a lot of money with little work on your part. After all, the higher your risk, the higher your potential for reward. However, this doesn’t come without the threat of consequence. Since there is a chance you could lose everything you invest, the money you use should not be pertinent to your daily living. That generous birthday check from grandma or the additional paycheck you have from a summer side job is a good place to start.
You’re emotionally stable for loses (and gains!)
Many financial advisors suggest you invest and then forget about it. Although they mean this loosely, it can be stressful to keep track of the ebb and flow of the market on a daily, or even hourly, basis. High and low points are inevitable and you must adjust your attitude to accept this as part of the game and have the flexibility to use it to your advantage. If you’re easily rattled and inclined to sell at any and every bump in the road, investing might not be right for you. Saving accounts or bonds would be a safer alternative.
You don’t need the money tomorrow (..or in the next 5 years)
You will need to have the ability to ride out dips in the market which means you have an open timeline as to when you can sell. For example, if you’re planning to put a down payment on a house with your investments this year and the market hits a low (cough the housing market collapse of 2008), your hands are tied and you’re almost guaranteed to lose money. However, if you’re flexible as to when you want to buy property, you can wait to sell at a market high, aka at a point where you’ve increased your investment.
What was your deciding factor on whether to invest or not?
I finally decided to make the leap when I finished paying off my student loans and had a stable job. I knew putting money away in a savings account wasn’t necessarily hurting me, but there were better options available.