Before You Start Investing

There maybe several reasons why you to want to invest your money. You may want to retire early, want to build your own business in the future, or to pay for your kid's education. Should everyone start investing outside their retirement accounts right away? The answer to this question is that it depends on your financial situation. First, you must have a basic understanding in financial management. What would happen if you lose your job, accumulate large medical expenses, or losing money on your investments? Do you still have money to pay your bills? Do you have to sell your investments that you have worked so hard for, with a loss? No one knows what the future will bring. Therefore, you must have a safety net to fall back on in an unexpected event. This article contains 5 concepts that you should follow before you start investing outside of your retirement accounts.

1. Increase your savings rate:

Cutting down on your expenses is the easiest way to increase your savings rate. You can also increase your savings rate by working overtime or switching to a higher paid job, but these are usually harder to do. If you want to accomplish your financial goals, you must start saving your money. You can do this by evaluating where you spend most of your money, and adjust your lifestyle to increase your savings rate. You will be surprised how small changes can increase your savings rate tremendously. For example, you can make your own coffee in the morning, shop while the clothes are on sale, and cut down on eating out, can save you lots of money.

2. Emergency cash reserve:

Have an emergency cash reserve of at least 3 to 6 months of living expenses. This step maybe the hardest step to accomplish. But in the event that you lose your job, you will be thankful that you have this money. The best place to put your emergency cash reserve is in a money market fund. If you have relatives that are generous, you could use them as your emergency cash reserve. But make sure that you ask them first.

3. Paying off your consumer debts:

Pay off your consumer debts, such as car loans and credit card loans can help you financially. Let's say that your credit card charges you a 10% annual interest rate. Paying down that loan is like investing your money in stocks with a 10% annual return without tax consequences and risk free. Another reason you may want to pay off your consumer debts is that the interests are not tax detectible.

4. Paying down your mortgage:

If you want to pay down your mortgage earlier than required, compare your mortgage interest rate to an investment that you intend to invest in to make your decision. However, all investments have risks and you could end up losing money if you chose to invest. I personally think that paying down the mortgage early is too boring. In addition, the interests that you pay are tax deductible. Another reason that you may not want to pay down your mortgage early may be that you want to contribute more to your retirement accounts.

5. Contribute to your retirement accounts:

Take advantage of the tax benefits of your retirement accounts. If you are in a 30% tax bracket, for every $1000 that you contribute to your retirement account, you instantly saved $300. In addition, any profits inside your retirement accounts (dividends, interest) grow without taxation until you withdraw your money after age 59½. If your company matches a certain percent of your pay, you should contribute at least enough to receive the maximum company match. After all, it is free money. This is similar to making 100% return on your investment immediately. Can you do that with stocks? Not likely!

Once you have developed your safety net, you are ready to take on more challenges, but do it wisely. It took me 2 years to have my finance organized to begin investing outside of my retirement accounts. Use as much time as you need. And remember to diversify your portfolio.

http://www.onlinefreedomwork.com

Latest News


Xinhua

Microsoft's Ballmer to CES: keep investing in tech despite ...
Scientific American - 9 hours ago
Las Vegas , NEV. -- In his first ever CES keynote, Microsoft CEO Steve Ballmer yesterday acknowledged the tough economic times, but urged companies not to ...
Microsoft: the year ahead ComputerWeekly.com
Microsoft releases Windows Server 2008 R2 beta VNUNet.com
Ballmer Offers Tempered Optimism in CES Keynote TechNewsWorld
AFP - G4 TV
all 1,088 news articles

Wealth Bulletin

How to avoid a Madoff fund
San Francisco Chronicle,  USA - 52 minutes ago
Feeder-funds (hedge funds or funds that do all their investing through another fund) and funds-of- funds sold investment services to individuals, ...
Fund-of-Hedge Funds Lacked Technology to Avoid Madoff Losses Advanced Trading
D Bank declined offers to invest with Madoff Financial Times
all 11 news articles

Express from The Washington Post

The Best Investment Values in a Decade
Motley Fool - 8 hours ago
These days, we're presented with what Ron Muhlenkamp a few months ago called "the best investment values we've seen in a decade." Obviously, the market has ...
You Are About to Make a Bad Investment Motley Fool
The Flight to Safety Could Burn You Motley Fool
Wednesday's Biggest Stock Stars Motley Fool
Motley Fool - Motley Fool
all 146 news articles

Dividend.com

Billionaire investor places next supermarket bet
MarketWatch - 4 hours ago
Yucaipa's investment funds have been aggressive buyers of Whole Foods shares since Nov. 24, spending a net $98 million to amass the stake. ...
Activist shareholder buys 7 percent stake in Whole Foods Austin American-Statesman
Billionaire investor Burkle bets on Whole Foods MarketWatch
all 21 news articles

Thomas, McNerney & Partners Promotes Three Members of Its ...
PR Newswire (press release), NY - 6 hours ago
Thomas, McNerney & Partners is a health care venture capital firm with approximately $600 million under management, focused on investing in life science and ...

US investment in IT would create jobs, group says
ITworld.com, MA - Jan 7, 2009
by Grant Gross A US$30 billion investment by the US government in broadband, health IT and smart energy grids would create or retain nearly a million jobs, ...
New ITIF Report Documents How $30 Billion IT Stimulus Package ... eGov monitor
$30B IT Stimulus Will Create Almost 1 Million Jobs Slashdot
all 32 news articles

Appleseed Fund Ranked by Lipper as Top Performing Midcap Value ...
CNNMoney.com - 11 hours ago
"Since the Appleseed Fund's inception, we've shown it's possible to outperform the market by investing in companies with strong sustainability records and ...

New T. Rowe Price mutual fund eyes global investment
Bizjournals.com, NC - Jan 7, 2009
T. Rowe Price Group Inc. is launching a new mutual fund seeking reward amid the risks of global fixed-income investing. The Strategic Income Fund will ...

Globe and Mail

Learning from Madoff's Ponzi scheme
WKOW-TV.com, WI - 7 hours ago
Another important lesson from the Madoff Ponzi scandal is that investing money successfully also requires some homework on your part. "If you're investing ...
Video: Congress Sounds Off Against SEC in Madoff Affair AssociatedPress
Congress Demands SEC Speed Madoff Inquiry to Improve Oversight Bloomberg
Re-defining Risk: 5 Investment Rules for 2009 Midas Letter
BusinessWeek - Chicago Tribune
all 2,720 news articles

Uma Thurman No Help to Arpad Busson in Madoff Fraud’s Nightmare
Bloomberg - 20 hours ago
In mid-December, EIM disclosed it was one of at least a dozen funds of funds caught up in the massive alleged fraud perpetrated by New York investment ...

Resources