We hear time and time again to start investing early, do it often, and do it more. While this is true, it is important to take note of four key things before you decide to start your investment journey. Once you have these four things taken care of: Start early, do it often, and do it more!
- Build 3-6 months of emergency savings. This will help you weather many financial bumps in your personal and professional life. The worst thing you can do is liquidate your assets in a mad scramble to address an emergency, or feel stuck in a bad situation because you lack the financial means to do something about it. Your emergency savings is your buffer.
- Contribute enough to take advantage of your company’s 401(k) matching contribution. From my knowledge there is no investment in the world that will provide you with a dollar for dollar match to your contributions. If your company offers universal and immediate vesting then for every dollar you contribute that full dollar match from the company is immediately yours. Of course every plan is different, so do your due diligence to understand the matching formula and vesting schedule for your company’s plan.
- Pay off high interest debt. This debt is toxic. Anything with an interest rate above 4-6% is most likely eating away at your living standard and net worth. It is difficult to justify borrowing at this rate without earning a reliable rate of return that will more than offset it. Do yourself a favor, follow steps 1 and 2 then focus your efforts on step 3, and you will be well on your way toward creating a financial foundation that can set you up for financial freedom.
- Budget using the 50/30/20 rule. Having a budget is a magical thing. It allows you to add some organization and purpose to your financial spending and makes living your life and obtaining your goals easier. The 50/30/20 rule is a minimalist guide to budgeting. The way it works is by taking your after tax monthly income and setting aside 50% for essential expenses (Think rent/mortgage, bills, utilities) 30% for fun/entertainment (Eating out, movies, traveling) and 20% towards savings. If you keep it simple by following this rule, you will have a much easier time getting through the first 3 steps and beginning your investment journey.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.