If you’re looking for simple steps to start investing, here are some of the ways that you can make our income really work for you and help support you long-term, long after you’ve made the initial money to invest. (And yes, now is a great time to begin your investing journey.)
If you’re able to pay all your essential bills, the next step in your financial freedom should start with building a small emergency fund, which might mean something different to you now than it might in ten years, but aim for at least one month of expenses to be covered.
After that, here are some proven steps to investing, or as they say in Denmark, investering i aktier!
1. 401K
To invest in your retirement properly, make sure that you are contributing the amount you need to make sure to get your employer’s full match. Ideally, contributing more should be bypassed to invest in other places.
But you can also put money into an IRA, or, if you’re in the UK, an ISA is a great option.
2. Pay off high-interest debt
At this point, you will need to evaluate any high-interest debt that you have.
You’re secure for a month of living should something happen, and if you have any high-interest debt, which implies any debt higher than 10%. You might be shaking your head, but paying off high-interest debt is part of being able to invest later on.
At this point, you may want to consider paying this down before jumping to the next step.
3. Increase your emergency fund
By allowing yourself to comfortably live for three to six months without any income, you can know that any investments you make are not going to be withdrawn as soon as a crisis hits.
Whether that crisis is losing a job, or a family emergency you never could have predicted, you want to be able to keep your investments doing what they need to do: building long-term wealth. Every time you sell stocks, that income becomes cahs that is making very little on interest in the bank.
So, keeping several months of income ready for emergencies means that your investments can work for you. This also means you won’t need to take a 401K loan.
4. Invest in your health
This might not be exactly where you expected a step to come in to play, but if you are eligible for an investable Health Saving Account (HSA) through your employer, take advantage of it.
Any income that goes directly from your paycheck into your HSA is non-taxed, so any medical bills you accrue can be paid with non-taxed income. In this event, you’re making the most of your money in the same way a 401K does.
If you can, max your yearly HSA contributions to invest in your health.
This cuts any potential for dipping into your emergency fund. Investing in your HSA doesn’t sound fun; it certainly doesn’t have the glamour associated with it as watching stock market tickers.
However, it’s a great idea, especially if you have kids. Health insurance and medical bills in the USA can be incredibly costly, so investing with non-taxable income can be helpful to reduce relying on your emergency funds.
5. Stock investments
Once you have all your ducks in a row, you can start to invest in what most people consider traditional investing. At this point, you have a great fall-back strategy in the event of an emergency, and you’re able to take part of your paycheck to start investing in stocks.
If you are new to stock purchases, you have several options.
You can go the way of robo-investing, investing with an online broker or investment advisor, or manually micro-investing in stocks with something like Robin Hood, which is a user-friendly application to get you started quickly to investing and micro-investing.
There are obviously various benefits to each of these, and if you’d like to dive into the benefits and disadvantages of using a Robo advisor, you can check out this thorough rundown via CNBC.
Stock investing isn’t for the light of heart, and it’s a good reminder to set it, then forget it, since stocks can swing in either direction. In the era of technology, you have a wealth of knowledge at your fingertips as soon as you access the internet. Here is a breakdown of five of the most commonly used stock websites to help you get up and running.
A note to those in the early stages of investing
Proven steps to easy investing doesn’t start with stock investments, but once you’ve reached the fifth step, you have a lot more freedom financially than when you’re still in the beginning stages.
Making smarter choices earlier on can be less exciting than playing the stock market, but investing isn’t just about making a quick dollar; it’s about maintaining wealth long-term.
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