We all know investing is important. But at what point in our financial plan should we invest? It’s a question on the minds of many. Financial experts all have their own opinions, so let’s take a look at some the advice that’s already out there. Here’s when you should start investing your money!
Many Investment Brokers: Invest Immediately
The investment brokers I’ve sat down with have told me that I should invest my money immediately. After all, I’m young, and I have a long time for compounding to work its magic. Typically they’ll pull out a calculator and show me how if I start investing $100 per month now until the age of 65, I’ll have over a million dollars in stock.
A million bucks is pretty tempting, but do they even consider my current financial situation? What if I’m broke and can’t spare $100 per month? What if I’m in massive amounts of debt and would benefit more from paying that down? Are they even thinking about these things, or are they just simply thinking about their commission?
Now, I’m not broke and I don’t have massive amounts of debt, but think about all the young people out there who are in financial trouble! Perhaps there are people who shouldn’t be investing right now because of life’s circumstances–perhaps they need money in the short term and should be saving instead.
Not all investment brokers advise investing your money immediately, but it is a reoccurring theme I’ve found. What has been your experience?
Financial coaches, on the other hand, align their payments with your interests. They consider your entire financial scenario and aren’t trying to sell you something you don’t necessarily need. If you’re looking for unbiased investing advise, it might be wise to contact one. You pay for their time, that’s it!
Suze Orman: Invest Conditionally
Suze Orman, a popular televised financial advisor, has written that you should invest only when you have met certain conditions. Those conditions are as follows:
- You must first have an eight-month emergency cash fund.
- You must not have a car loan or credit card debt at an interest rate of 6 percent or more.
- You must not need the money you’re investing for at least 10 years.
- You must be emotionally ready to invest and stomach the risk if your investments fall.
Not many people can immediately meet these qualifications. Check out the results of this poll from BankRate.com:
The Bankrate poll indicated that while 70 percent of the respondents have at least some money in a savings account, certificate of deposit, money market account or money market mutual fund, only 39 percent have enough to cover three months of living expenses.
It would take a decent amount of time for people to build up their emergency fund and reduce the interest rates on their debt. However, I think this is generally wise advise from Suze.
Dave Ramsey: Invest Conditionally
- You must have an emergency fund of three to six months worth of living expenses.
- You must first pay off all your non-mortgage debt–yes, everything except your house!
- If you want to invest into non-retirement accounts, you must first fund your children’s education and be completely debt free (house and all).
Dave differs from Suze in that he believes you’ll be able to cope with a smaller emergency fund as you start your retirement investing, but stresses the importance of paying off debt before you start. Dave doesn’t play the interest rate game; generally, he just cares about the balances you hold.
Like Suze’s plan, Dave’s plan requires that people will have to wait to invest until the timing is right–which could take several years. Again, wise advise.
Other Opinions and Thoughts on Investing
I’ve found several more opinions on when you should start investing your money. Like many investment brokers, some say that you should pay yourself first regardless of where you are at in your financial journey and invest the money so that time works in your favor. I’ve also encountered those who don’t believe in investing at all, as they see the risk too high and would rather put their money into certificates of deposit or regular savings accounts.
There are those out there that are able to invest, but are too scared by the complexity of investing options out there. That’s understandable. But with solutions like Betterment (an online retirement and wealth-building investment platform) making it easier for people to invest, this group really doesn’t have much of an excuse anymore. Investing has been made pretty easy now.
When should you start investing your money? I like Dave’s and Suze’s recommendations. How about you?
Have you started investing your money? If not, what’s holding you back? Do you think you’re making a wise decision for your current financial situation? Let’s meet up in the comments!