Am I Ready to Start Investing?

The 5 things you need to know before investing.

Many of my clients are ready to start their investing journey but find it surprising when I ask them if they have checked off some of the key elements to find out if they are actually ready to start investing:

Here are the main key points they must check off their list before investing.

1. Do you have a budget?

A budget is not a restriction; a budget is a financial roadmap where you tell your money how you want it to work for you.

My favorite budget method is the 50/30/20 budget method because it is easy to understand and automate. When using this budget method, 50% of your take-home income goes towards your needs—things such as food, shelter, health insurance, all the things you need to survive.

30% of your budget goes towards your wants. The money you get to spend on fun things, clothes, dining out, gym, etc.

20% goes towards your Investments (401K, 403b, Roth IRA, etc.), savings, and your debts.

2. Do you have 3-6 months’ worth of expenses saved?

Having an emergency fund is essential to becoming a long-term investor. Your emergency fund is money set aside for an emergency, such as job loss, medical emergencies, and let’s be honest, even taking a week from a toxic job environment to look for a new job.

3. Are you currently tracking your net worth?

Your net worth is your assets minus your liabilities, in other words, the thing you owe vs. the things you own. Whether positive or negative, you want to track your net worth because this will tell you how much money you have left to start investing and provide a clear picture of your debts.

4. Do you have a debt-free date in mind?

We have dates for everything, from a wedding date to a graduation date, so why don’t we have a debt-free date. Having a debt-free date keeps you motivated and allows you to focus on small habits that eventually lead to big goals.

5. Do you have a system to automate everything I just asked you?

Most of my clients are blown away when they learn how easy it is to automate your budget. You don’t need to spend hours every month calculating how you are going to spend your money. Since I started my personal finance journey, I’ve discovered that managing your money is all about t is the mindset and systems.