Here’s How You’ll Know You’re Ready To Start Investing Money

when should you start investing

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If investing money seems like something so far in your future that you’ll probably have grey hair by the time you actually do it, think again. Whether it’s stocks, mutual funds, bonds or a diversified portfolio, investing money is very doable in your 20s. In fact you might already be investing money and not even realize it!

Instead of waiting around until you feel ready to take on the challenge of investing money, aim to reach these goals. Here’s how you’ll know when you should start investing.

1. You’ve paid down all of your high-interest debt.

We’re talking personal loans and credit cards here. (Hopefully your student loans have low interest rates below 5 percent. If not, then count those, too.) If you have a personal loan and money on your credit cards that you’ve yet to pay off, make that your main focus every month. Pay more toward the principal to decrease that debt ASAP. You don’t want to invest any excess money until you’re debt-free because you could end up losing the money which would have helped you save money in interest.

2. You’ve saved up an emergency fund.

An emergency fund is six to nine months’ worth of your necessary living expenses. Once you have this amount in your savings account, you’ll be ready in case something unexpected happens. Whether it’s car repairs, the loss of a job or even a must-attend destination wedding for your cousin, you’ll want to have more than enough money ready when you need it. After paying down your high-interest debt, this is the next financial priority on your list.

3. You’ve set up a retirement account.

retirement account

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So you might actually already have a retirement account through your employer. But if you don’t, consider signing up for an individual retirement account, or IRA, on your own through a company like Ellevest or Betterment, or even through your bank. A retirement account is actually an investment account, so technically once you have it ready to roll, you’re investing money because that cash that you stash away for your future has the potential to grow.

4. You’re able to save more than 20 percent of your income every month.

We’ve mentioned the 60-20-20 budget before, but as a reminder, you should spend no more than 60 percent of your monthly income on your necessary expenses, save 20 percent and then spend 20 percent on whatever you want. It’s totally flexible though, so if you need to spend a little more on your rent, commute or groceries, it’s okay. However, once you find you’ve mastered the 60-20-20 budget and can shift those digits around a bit, you should consider investing.

Maybe you got a promotion at work and make more than you used to. The percentages may change to something like 50 percent for your necessary expenses, 20 percent for savings and 20 percent on whatever you want. Now you have an extra 10 percent that you can use to invest.

Ready, Set, Invest

start investing

Burst/Samantha Hurley

Once you’ve done all four of these things, you can and should consider investing your money. You can start with as little $5 with apps like Stash, Acorns and Robinhood, or can sign up with companies like Ellevest, Betterment and Fundrise to invest hundreds or thousands of dollars in diversified portfolios or real estate. Whatever you do, aim to make your money do some of the work for you.

Take some time to research the type of investments you want to make. Maybe you want to invest in companies that have goals and passions that align with your own. Or maybe you have a high tolerance for risk and want to get started in the stock market. It’s smart to consult a financial advisor, whether in person or online (robo-advisors are great!) to get an idea of how much you can afford to invest and ways that you can grow your money the smart way.

Although investments are not guaranteed to make money, in the long run, you’re more likely than not to have more money than you started with. The sooner you start, the longer you have for the money to grow, so don’t hesitate or you won’t be as financially free as you’d like in the future.

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