5 Signs You're Ready to Invest

So you know investing's important, and it's been on your list for some time now, but you're just not sure if now's the right time for you to get started.

I get it, and I've been there myself.

Here are 5 signs that now is the right time for you to start investing - and what to do if signs point to 'no'.

1. YOU KNOW HOW MUCH MONEY YOU BRING IN AND SPEND EACH MONTH

If not, TAKE ACTION!

Complete my Monthly Budget Calculator, then move on to #2.

2. WHAT YOU BRING IN IS HIGHER THAN WHAT YOU SPEND

If not, TAKE ACTION!

If what you spend is only A LITTLE higher than what you bring in: try implementing one or more of these 30 simple life hacks from my Money Saving Cheat Sheet to see if you can easily get to a point where you're bringing in more than you're spending

If what you spend is A LOT higher than what you bring in: I'd suggest using my Make More Money Starter Kit to get a raise so you can start bringing in more than you're spending (you can also use the Money Saving Cheat Sheet, but prioritize the Make More Money Starter Kit)

Once #2 rings true for you, move on to #3.

3. YOU HAVE A COMPLETED EMERGENCY FUND*

*I define an Emergency Fund as 3-6 months of your living expenses (which you should know from #1 or my Monthly Budget Calculator) that's kept somewhere safe/with low volatility (which unfortunately means lower growth) like bonds or an FDIC-insured account or a HYSA (High-Yield Savings Account).

If not, TAKE ACTION!

Calculate the difference between what you're bring in and what you spending each month, and use that number to set up a monthly auto-draft that's split 50/50 between your Emergency Fund and paying down any debt with an interest rate that's greater than 10%.

(If you don't have any debt with an interest rate that's greater than 10%, put 100% of that money toward your Emergency Fund each month).

For example: if you're bringing in $5K per month, and you're spending $4K per month, the difference is $1K. You'd divide $1K in half, meaning you'd set up a monthly auto-draft for $500 to your Emergency Fund, and $500 to your debt with an interest rate of greater than 10%.

Once #3 rings true for you, move on to #4.

4. YOU'RE DEBT-FREE OR YOU ONLY HAVE DEBT WITH INTEREST RATES OF LESS THAN 10%*

If not, TAKE ACTION!

Calculate the difference between what you bring in and what you spend each month, and set up a monthly auto-draft for that amount to go to paying off any debt with an interest rate of higher than 10%.

For example: if you're bringing in $5K per month, and you're spending $4K per month, the difference is $1K. You'd therefore set up a monthly auto-draft for $1K to pay off any debt with an interest rate of greater than 10%.

Once #4 rings true for you, move on to #5.

*The reason for the 10% threshold is this: historically speaking, the stock market returns at 10%. So if you have debt that's less than 10%, theoretically, you'll make more putting that money in the stock market than you'll lose by not paying off the debt as quickly as possible. Of course, you'll still need to make your regular payments in order to keep your credit up.

For example, our home loan is at 3.9% and we pay our typical mortgage payment every month, however, whenever we have extra money (say, when I used to get bonuses at work), it's temping to throw that extra money at our mortgage payment to get our total amount owed to drop down...

However, because the loan is only costing us 3.9%, it's wiser for us to put that extra money into the stock market (which historically returns at 10%, meaning we'd gain 6.1% on that money by putting it into the stock market instead of throwing an extra payment at our home loan).

5. YOU'VE DECIDED ON YOUR INVESTMENT STYLE & DONE INITIAL RESEARCH

If all 5 of these signs ring true for you, you're officially READY TO INVEST! Move on to the final section.

If not, TAKE ACTION!

You'll need to decide if your investment style is more:

Hands-on - meaning you'll manage all your investments yourself
Hands-off - meaning you're willing to pay a small fee of your investment profits to someone else to invest on your behalf

And do some research based on your preferred investment style:

Hands-on: research different asset types, look into companies you're interested in potentially investing in, look at their financials, their history, their projections, their product/service, and stay up to date on what they're doing
Hands-off: research companies that will invest on your behalf; make sure they're a FIDUCIARY which means they're required by law to act in your best interest (some I know of are Ellevest, Betterment, Wealthfront, etc.)

Once #5 rings true for you, you're officially READY TO INVEST!

YOU'RE READY TO START INVESTING!

Having an Emergency Fund empowers you to invest without fear because you know you have 3-6 months worth of living expenses to fall back on in case your investments take a turn for the worst, and having debt with an interest rate of higher than 10% paid off enables you to use your money most efficiently, as shown in the example in #4 regarding our mortgage.

And now that you've decided on your investment style, all that's left to do is actually begin.

HOW TO GET STARTED

If you've decided on the hands-on approach, set up an account with a brokerage like Robinhood, TD Ameritrade, or another company to start investing in the stock market on your own. You can also look into other types of assets to invest in beyond just the stock market (I've written a blog post on 5 different asset types that may be helpful).

If you've decided on the hands-off approach, set up an account with a fiduciary like Ellevest, Betterment, Wealthfront or another company, and don't be afraid to explore other assets beyond just the stock market (like the 5 different asset types I cover in this post).

And the last step is to re-route your auto-draft from your Emergency Fund and/or your debt payments with interest rates of 10%+ to your brokerage account or your fiduciary account to make sure your money is ready and available to be invested. (And if you've chosen the hands-on approach, you have one extra step, which is to actually INVEST the money you've moved into your brokerage account.)

And that's it! I'd continue to pay regular payments on any remaining debt until all debt is paid off (build that into your budget along with all your other regular monthly expenses), but otherwise, I'd throw as much money as possible into investments; that's the approach I took, and it's served me well.