Are you finally having some money left over each month? It is a great opportunity to start investing your expendable income in a wise way. But before you do that, some smart moves will set strong bases for you to kick-start your financial independence.
Maybe you recently received a raise or you have a side gig that’s bringing in some extra cash. Having expendable money each month is a great starting point to the smartest thing you can do, money-wise: start investing. And while this sounds great, there are some things you should do before you create a portfolio.
Pay off your high-interest debt
This sounds boring, but it is really important that you pay off your high-interest rate, an action you will be able to enjoy later on. If you have a credit card debt, start paying that off.
Investing in the market and getting a return is really tempting, but think of it this way: in the stock market, the average return rate is 10% over the long-term —subject to fluctuations and drops, making it a risky option. Interests in a debt might be around 20%, so by paying it off you are getting a 20% risk-free return.
Create an emergency fund
Unpredictable things can happen at any given time and, if you are not well prepared, they might translate into a significant loss. Put away a portion of your income to create an emergency fund. Be consistent.
Determine a purpose
Before you start investing, you need to have a goal, which will help you decide the correct length or time frame of your investment and also the amount of risk you should take.
If you create a short-term plan, it’s better to invest in low-risk options. The return is not as high, but if you go for a risky and high paying option, you might not have the time to recover in case it drops.
Contact your HR department
Your company might offer a retirement saving option, so in that case, it is strongly recommended that you participate. Saving for retirement is something you should start doing as soon as you can.
Follow these steps before you start investing and you’ll be on your way to being financially stable.