Published in: Buying Stocks | Feb. 25, 2019
4 Signs You Aren't Ready to Invest
By: Christy Bieber
Investing is important, but not everyone is ready to do it. Check out these four signs that suggest you aren't ready to start investing for your future.Image source: Getty Images.
Investing is part of adulting. If you want your money to grow -- or at least not lose value because of inflation -- you need to invest by buying assets that will provide a reasonable return. For most people, investing is done in the stock market, although you could also invest in other assets such as real estate.
Since most people know the importance of investing, you may be eager to get started. But, not everyone is actually ready to put their money in a brokerage account so it can work for them. In fact, these four signs could suggest you aren't yet ready to invest.
1. You have a lot of debt at very high interest rates
Do you have payday loans or a car title loan? If you do, both of these types of debt typically charge annual interest topping 300%. You cannot afford to invest until this debt has been repaid in full because the interest you pay far exceeds any gains you could earn on an investment.
If you have high interest credit card debt, it may also be worth paying that off before you begin investing. After all, you're not likely to earn a 15% or 20% return on money you invest, but these rates are common for credit card debt.
If you find you owe a lot of money at high interest rates, it can be frustrating that paying down debt forces you to put your investment plans on pause. Make a plan to pay back this debt as soon as possible so you can divert your spare cash to assets that will help you build a more secure future.
2. You're living paycheck to paycheck with no emergency fund
Do you find yourself running out of money before your next paycheck comes? Do you have no cash in the bank you can access in case of an emergency?
If so, you need to solve both of these problems before you can start investing. If you have no spare cash, you obviously can't invest because you'll have no money to buy assets. And, if you don't have an emergency fund, investing doesn't make sense because an emergency could force you to go into debt or take money out of the stock market at an inopportune time.
To stop living paycheck to paycheck and find spare cash to buy assets, try to live on a budget that reduces your spending and allocates cash to investing. Or, consider a side gig to increase your income.
As far as an emergency fund goes, ideally you'll build a fund over time that covers three to six months of living expenses. But, it could take too long to start investing if you try to do this first. Instead, opt to save a little bit, like $1,000 or $2,000 for emergencies, before you begin investing. Put this money into an account you can access easily.
Once that's done, divide your spare funds so some goes to building a bigger emergency fund and the rest is invested. If you have $100 in spare cash, put $50 of it into building your full emergency fund and $50 into your investment account. That way, you can both invest for the future and build your cushion for short-term emergencies.
3. You're susceptible to get-rich-quick schemes
There's a lot of bad investment advice out there -- and following it could lead to disaster. Before you start investing, you need to know there's no easy solution to double or triple your money. If you try to chase get-rich-quick schemes or have unreasonable expectations, losing your money is the most likely outcome.
Instead, you need to commit to making responsible choices aimed at earning reasonable returns. If you can do that -- and are confident you can say no to investment schemes that sound too good to be true -- you're ready to begin looking for assets that will grow your wealth.
4. You have no clue how to invest
Investing can be complicated. You don't need to know everything about investing before starting to buy assets aimed at producing returns -- but you need to know enough to understand where to put your money.
You should understand how stocks work, how to buy them, and why you need to diversify your investments so if one investment performs poorly, another will likely do better. You should also understand the costs you'll pay for different assets so you can compare fees and expenses when you make your investments.
The good news is, there's lots of advice out there for beginning investors so you can learn some of the fundamentals before you get started.
You can get ready to invest
If you're not ready to start investing yet, don't lose heart. You can take steps to pay off your debt, start living on a budget, and learn about investing responsibly. If you get started today, you should be ready to invest in no time.
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