Ready to Invest? 5 Steps to Reach Goals You Can Afford.

Investing is the fun and sexy part of personal finances. We all have that dream of building our nest egg so we can retire, quit punching a clock and finally fill our days traveling with a margarita in hand.

“How should I grow my investments” or “what do I need to do to start seriously investing” are questions that people start to ask as we get excited about this phase of our finances, but let’s not rush things.

In order to start investing responsibly, a few things need to be in order first. To sort out how much you should invest and when you can start, follow these five steps to start investing.

Write Out All Your Financial Goals

When we financially want to take on new things it’s important to weigh them against what your current priorities are. Since money is a relatively limited resource (in the sense of how much you bring home today, of course this number can increase in the future) we need to work to ensure every dollar is working towards our greater mission.

To do this, write down everything you want to accomplish. Whether you’re looking to move across the country, upgrade your old car, pay off student loans or retire by a certain age, each will require money.

As you write down your goals, be sure to include a healthy balance of short-term and long-term goals. 

Rank Goals in Order of Importance

Take a look at the list of everything you want to accomplish and rank them against one another. 

Which goals did you write down that are absolutely critical to your happiness? Which ones can wait? Which ones will require a large financial investment? The answers to these questions will show you where you should start saving.

Be sure to include both short-term and long-term goals on your final list. It's important to take care of yourself today while also keeping your future self in mind for their hopes and dreams.

Calculate Monthly Amount for Goal

Once you have narrowed down your list, create a mini budget to calculate how much money you should set aside in your sinking fund each month to reach your goal on time.

Here’s a video walking you through this simple yet critical process.

For example, if you want to save for a down payment on a new car you will need to know how much money you will be saving and when you will need it. If you want $8,000 by next summer, let’s say that’s in 15 months, you need to start saving $533 a month to reach your goal (the amount of money needed divided by the number of months you have to save).

If your target monthly savings may be adjusted if the amount is unaffordable (taking into account your monthly expenses and income). If this is the case, determine if there is room to adjust the amount needed or the date you wish to accomplish the goal.

Reconcile With Other Expenses

The cost of your current monthly expenses will determine how many goals you will be able to start saving for immediately and which ones will have to wait. If you have monthly expenses that are less important than the goals you are trying to accomplish, look at reducing these expenses. This will allow you to increase your monthly cash flow and save worry-free for these goals each month.

For example, maybe you want to join a running club to help you train for a big race but you don’t know if you can afford it. You could evaluate your streaming services and reduce your monthly entertainment expenses since more of your time will be spent outside training with your new run club friends.

Automate

The first trick to paying off debt or saving money to reach a goal is to automate. Don’t let that money hit your bank account, or be sure it doesn’t stay long. Work with your bank to automatically transfer money to another account to help you reach your goals without ever having to lift a finger.

Bonus: Paying Off Debt and Your Employer Match 

If paying off debt and investing for retirement make the final list of goals you want to accomplish then there are a few routes you can take. Choose a route that feels most comfortable to you, taking into account the time it will take to become debt free and how long you have until retirement. 

Option 1 - Pause investing until debt is paid off (recommended for short-term debt payoff plans, 24 months and less). This is a route some people take when paying off debt is more important than anything else or causing a lot of stress.

Option 2 - Continue investing to qualify for your employer match but contribute nothing more (normally recommended). This option is ideal for those with the idea that missing out on employer matched funds isn’t worth becoming debt free sooner.

Option 3 - Continue investing fully to reach retirement goals (this will extend your goal date to become debt free). Ideal for those with the mindset that debt is a part of life but their future should be considered over anything else. 

Please speak with a certified professional to help you make a decision.