One of the most commonly used clichés in the investment business is “it is never too early to start investing” or “it is never a bad time to invest.” As is the case with most clichés, they contain an element of basic truth but are not widely applicable in most cases.
OK, so HOW do you know when it is time to begin an investment program you ask?
There are three areas of a person’s financial picture that should be completed before talking to someone like myself. They are:<OL TYPE=1 STYLE=‘margin-left : 0.7in’ style=‘margin-top : 0in’>EMERGENCY FUND: Determine the total sum of your monthly bills (including mortgage/rent) and save until you have enough to cover 3-6 months of your living expenses. This money should be in a checking or savings account.
CONSUMER DEBT: Credit card balances should be paid off before beginning an investment program. The reason is that no investment program carries a guaranteed rate of return, but it is guaranteed that the credit card company will charge you interest on your balance. Paying off a credit card balance with an interest rate of 10% is equivalent to earning a 10% return on your money.
401(k): One should max out their 401(k) contributions before starting an outside investment program. This allows the investor to take full advantage of a possible employer match (which is free money) while also contributing money on a “pre-tax” basis. This favorable tax treatment allows the investor to contribute more money into their 401(k) without “feeling” it as much.
Once you have completed these 3 things, then it may be time to seek help from a financial professional about customizing a personal investment plan. I know a guy that works for Family Trust that could help.
photo credit: Rosemary McKevitt