Investing is important for your future.
Investment planners generally recommend these initial strategies be taken before beginning an investment plan:
- Establish a cash reserve to cover three to six months’ living expenses.
- Do not spend more than 35% of your income to pay off debt (including your mortgage or rent).
- Obtain adequate life insurance — generally eight to 10 times your annual family income.
Then your initial steps should be:
- Determine your net worth — your total financial assets minus your debts. To do this, add up the current value of all your assets — real estate, vehicles, collectibles, savings and investments — and subtract from this all your liabilities — your credit-card debt, your mortgage, car and college loans, etc. If your liabilities exceed your assets, perhaps paying down some of your debt should be your initial strategy. If you find a high percentage of your net worth in real estate or savings, you may need to consider moving some of these assets into more diverse investments.
- Define your financial goals — set short-, medium-, and long-term goals so you can prioritize what’s important to you. Generally speaking, the more long-term your goals, the more investment risk you may wish to take, since the investments with the highest long-term growth potential tend to be more volatile.
- Talk to a trusted financial advisor. He or she can review your goals and help you design a sound plan for achieving them.
