What to Do Before You Start Investing

by financialmom on February 8, 2010

in Debt, Emergency Fund, Investing

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Here are the things that should be in place before you start investing, and I give credit to attending Dave Ramsey’s Financial Peace University with my husband for my diehard insistence on these rules:

Emergency Fund

You need an Emergency Fund, in a investment you can access quickly. Use a money market or savings account.  This money needs to be completely available and liquid.  This is where so many people have gotten themselves into a lot of trouble this past year.  In the past, we have had money for everything but our savings.

An emergency fund is for those unexpected events in your life that you can’t plan for – like the loss of a job, an unexpected medical emergency, a faulty car transmission – the list goes on and on.  It’s not a matter of whether these things will happen – they will – it’s a matter of when they will happen.

Be prepared, and take the worry out of your life about unexpected events.  Then it won’t be a disaster to your finances when they happen.  If you have no emergency fund whatsoever, get $1000 in an emergency fund right away – sell some stuff if you have to!  Like Dave Ramsey says, sell so much stuff you make your kids think you are going to sell them next icon smile What to Do Before You Start Investing !

How much do you need in an emergency fund?  It depends on your situation.  Most advisors will say at least three months of your monthly expenses.  When unemployment and job uncertainty is high, you may want to have even more liquid money available, like six months or even more of your expenses.   It is interesting to note, while the savings rate in the United States has been negative (no savings, and debt) for some years, in the past year people started saving again – so at least the recession has had one good result.

Debt

Pay off all your debt, except for your mortgage (pay your mortgage off early too if you can).  Yes, I said it, pay off all your debt! Get rid of it!  Why do you want this hanging around your neck?  Talk to all the people who lost jobs this past year, and as a result have lost their homes, and have filed for bankruptcy.  You have no business investing when you are carrying a lot of debt.

Our society has been so programmed to accept debt as a normal way of life. We don’t ask how much a car costs anymore – we just ask what the monthly payment is, to see if we can afford the monthly payment.  There is something totally wrong about this!  Pay off your debt, and you will be prepared when financial emergencies happen.

But you say, what if I have a lot (!) of debt???  I suggest you get very intense about paying it all off! Do what you have to do, even if it means selling those expensive cars, downsizing your house, cancelling the cable, cutting up the credit cards, whatever it takes!

Make a decision to get started today, change your family’s life forever, and look forward to being an investor!

New Profile Pic 2599R What to Do Before You Start InvestingPamela Otten is CEO of Pamela Otten LLC, a Registered Investment Advisor. She loves to work with women business owners and entrepreneurs, and women in transition due to job change, death, or divorce. Pamela will help you set and reach your financial goals, educate you to understand your investments, and teach you how to do more charitable giving. Pamela is a Qualified Kingdom Advisor (www.kingdomadvisors.org), trained and committed to integrating biblical principles with her investment advice.

cc smallest What to Do Before You Start InvestingPhoto credits: squeakymarmot,andrewbain

Financial Planning, Investment Advice, and Investment Management provided through Pamela Otten LLC, Registered Investment Advisor.

The opinions voiced in this material are for general information only, and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, please consult your financial advisor prior to investing.

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