3 Signs You're Not Ready to Start Investing
Investing is a great thing to do -- but only if the timing is right.
- There are financial goals you should meet before investing your money.
- It's also important to find the right account to invest in.
The great thing about investing is that it gives you a chance to turn a smaller sum of money into a much larger one over time. In fact, the more time you give your money to grow, the more wealth you stand to accrue.
You'll often hear that it's best to start investing as soon as possible. But actually, there are certain milestones you should aim to meet before your investing career kicks off. Here are three signs you should hold off on investing a bit longer.
1. You don't have an emergency fund
No matter how old you are or how much you earn, your primary financial goal should be to build yourself an emergency fund -- one with enough money to cover three to six months of essential living costs. That way, you'll have cash reserves to tap if unplanned bills come up, and you'll also have money on hand to tide you over in case you lose your job for a period of time.
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If you don't have a full emergency fund, completing it should take priority over investing. If you don't finish funding your emergency savings, you might land yourself in debt -- and wreck your finances in the process.
2. You still have credit card debt
Owing money on your credit cards is problematic for a couple of reasons. First, the longer you carry a balance, the more interest will build up against you. If you carry that debt for too long, you could easily end up paying just as much interest as the initial amount you charged in the first place.
Also, high levels of credit card debt can hurt your credit score. And an unfavorable credit history could make it difficult to get a loan, rent a home, or even, in some cases, get a job.
If you have credit card debt, paying it off should trump investing. Once you're out of debt and able to move forward with a clean slate, you can start building wealth for the future.
3. You haven't researched different account choices
There are different types of accounts you can invest in. Traditional brokerage accounts don't offer any tax benefits, but they also don't restrict you from taking withdrawals when you want to.
Meanwhile, IRAs let you contribute funds for retirement and enjoy tax breaks along the way. But these accounts also force you to abide by certain rules, like keeping your money untapped until age 59 1/2. Taking a withdrawal before age 59 1/2, in fact, will generally trigger a 10% penalty.
It's important to weigh the pros and cons of different investment accounts before deciding where to put your money. To be clear, you don't have to choose one type over another. In fact, it could work to your benefit to put some of your investment dollars into a regular brokerage account and the rest of your money into an IRA.
It's a good idea to make investing a priority -- but only once you've built an emergency fund, paid off credit card debt, and figured out what sort of account to invest in. From there, you'll be in a more solid position to start growing long-term wealth.
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