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I Want to Invest! How do I Prepare? (Hint: Answer These Questions)

By: Kelly McNerney

You just got promoted. Your future looks bright. The time seems right to kick your investment game up a notch and take your first serious dive into stocks, bonds, and other opportunities that can make you money work harder for you.  

Whatever investment strategy you take, it should always complement your overall financial circumstances and life goals. Before you make a market move, here are three basic questions to ask when you start to formulate your strategy: 

Where do I Stand Financially Right Now?

Step 1: Create a personal balance sheet. List your assets and liabilities on one page so you can view your financial picture.

Assets include cash (bank accounts); investments (401(k), college savings accounts), the resale value of your home and car; and significant personal property (jewelry, expensive collections). Liabilities include mortgage balance; loans (car, student, personal); and credit card balances.

Step 2: List your financial goals and attach a cost to each one. Divide goals into short term (less than three years), intermediate (3-10 years), or long term.

The following typical financial goals could fall into multiple categories depending on your individual circumstances: buying a house or relocating, buying a car (or another motor vehicle), starting or adding to your family, funding education, saving for retirement, bucket list travel, and many more. Your goal list should reflect your personal priorities.

Step 3: Create a budget. A monthly budget allows you to crunch numbers based on reality so you can accurately plan your next moves.

Calculate how much money comes in (salary, interest, dividends, etc.) and how much goes out (don’t forget items beyond your monthly bills, such as insurance payments, subscriptions, dues, holiday spending, recreation, etc.).

Save, Pay Down Debt, Invest?

Assuming you have a monthly surplus, now what? Depending on your individual circumstances, your next steps are to:

Emergency-FundBuild up an emergency fund. A safety net that totals 3-6 months of regular living expenses can help you break the cycle of debt. You have the cash to cover the unexpected without falling into debt. Create at least a $2,000 “starter” emergency fund before allocating your monthly surplus to other goals. 

Pay down current debt. This applies especially to credit card and other high-interest debt. A relatively low-interest mortgage, car, or student loan is meant to be paid off over a longer period and need not necessarily be eliminated before you start to invest. 

Invest for intermediate/long term goals. Your financial advisor can help you do the math to calculate the right formula for you to pay down debt vs. investing. 

Make the Best Choices for You

FJY Financial’s blog is full of information on investing to reach your financial goals at any life stage along with specific strategies for doing so. Stay tuned for part two, which will cover how to start investing once you are ready.