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Posted 31 October 2023

Preparing Mentally, Emotionally, and Financially to Invest

Investing can be one of the most confusing and in-depth financial topics. You may have heard the word before, but what are the first steps to mentally, emotionally, and financially prepare? How do you get started? Read on to get some clarity on how to prepare before you begin investing. 

It’s essential to take some initial steps to set yourself up for success before investing. Ensure your high-interest debt, such as credit card debt, is paid off or minimal. Also, work on building three to six months of emergency savings. To help reach this point, try developing a savings plan that could cover essential bills and expenses. Establishing an emergency fund will allow you a faster and generally more fluid way to access money compared to the time it takes to cash out an investment. In addition, having dedicated emergency savings grants you access to funds without incurring penalties or tax repercussions. Pay yourself first by setting up an automatic deposit into your savings account to grow your emergency fund and build a habit of saving. 

Next, take advantage of your employer’s 401(k) or retirement option if there is one available to you, especially if they match your contributions. A 401(k) is an investment account offered by your employer to help you save for retirement by adding to it before receiving your paycheck. If your company has a match program, try to contribute enough to get the maximum match. If you’re not able to put enough into your 401(k) to the maximum match yet, that’s OK! Go at your own pace and try to increase your contributions each year — or each time you get a raise — until you’re getting that maximum match amount. 

Feeling prepared to invest also means feeling emotionally ready to take a risk. If you’ve built up your emergency savings, paid down debt, and you’re regularly contributing to a retirement account, you may be ready to take the next step. Investing can be emotionally taxing, and it’s important that you know what you may grapple with and how you’ll maintain control despite challenges.  

Before getting started, get familiar with your own risk tolerance and expect some loss. The market fluctuates, so you should decide how often you’ll monitor your accounts and when it’s best to sell an investment if you decide to go that route. Use your investing goals to guide you in your decision-making process and remember the most significant yields typically take place with long-term investments.  

The earlier you start, the more you’ll make in compound interest. For example, if two people invest $100 each month at a 5% annual rate of return, but one starts at the age of 25 and one at 35, the person who starts when they are 25 will have approximately $162,000 by age 65, whereas the person who starts at 35 will have about $89,000 by the time they are 65.  

Finally, after taking steps to prepare, you’re ready to explore what investing options are right for you. Take a deep breath and happy investing!