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

---

Buying Florida Investment Properties and Where Its Hot

Relaxing in Style: Florida Investment PropertiesIn Florida, relaxing in the... Read More

Seecrets on Investment: Tired of Making Huge Losses in the Stock Market ? Part 1

Over 80% of all individual investors lose money in any... Read More

Investor Guide to Financial Health

Step 1: Spend less than you earnPerhaps the simplest financial... Read More

Mutual Fund Selection Made Simple By Indexing!

Non-indexed mutual funds try to keep it secret that actively... Read More

Who Wants To Be A Millionaire?

I am sure you have probably read about the power... Read More

The Real Cost of a Bad Habit

What is the value of a good habit? Think of... Read More

Chinas Great Missed Opportunity

While a U.S. Representative to the Asian Development Bank Executive... Read More

Why the Rich Keep Getting Richer

Rich people: fortunate, lucky, selfish, and arrogant? Or highly educated,... Read More

Will a Falling Dollar Derail Your Plans for Retirement?

How much are you willing to pay for a tank... Read More

POOF goes your RRIF !

Some time ago I attended a seminar where participants were... Read More

Scots Beat Yanks in China Bank Deal

With visions of an ATM in every neighborhood in China,... Read More

The Benefits of Laddering Your CD Investments

If you've decided to stock some money away in a... Read More

An Economical Retirement Investment Plan

The practice of economy, directed toward a retirement investment plan... Read More

Buy: Hold: Sell: Jump

I'm sitting here at my computer desk with a cup... Read More

An Old Dividend Stock Investment Idea, for a New Generation

Death and taxes! The certainties of life! And then, of... Read More

What If You Absolutely Positively Could Not Lose - Would You Play the Stock Market?

Seniors on fixed incomes face a unique problem. Where do... Read More

Annuity Owner Mistakes

Okay, so I can tell you I have sat in... Read More

The High Price of Oil

In less than four years, the price of oil has... Read More

Investing and Understanding What You Buy

"There is nothing more frightful than ignorance in action!" Johann... Read More

Delist My Corporation Please

It use to be said that once a company was... Read More

The 8 Biggest Mistakes When Designing Portfolios - and How To Avoid Them

Are you as good an investor as you think? Do... Read More

Variable Annuities

You know all the articles you read about annuities that... Read More

July 2005: Hurricane Forecasts for Weather Traders

Tropical Storm Arlene formed as a tropical depression on June... Read More

High Volatility Investments

Penny stocks and options are high volatility investments that attract... Read More

Why You Need To Buy and Sell Gold Coins (Part 1)

The Value of Gold in a Era of Paper Assets,... Read More

Remembering TEOTWAWKI and Learning from It

Its only been about 5 years since we had major... Read More

Waiting 20 Years Can Cost You Millions - Dont Wait Start Today

Many Young people live for Today. They really don't fully... Read More

Success Trading: More Basic Terminology for New Traders

One important aspect of trading the markets is to understand... Read More

The Arrow-Debreu Contingent Claims Model of Investment

Throughout the discussion of speculation and stability, we emphasized that... Read More

25 Ways to Find Companies to Buy

When you start your program to purchase your "ideal" company,... Read More

Almost Anyone Can Open A Roth IRA!

The Roth is kind of weird until you get used... Read More

Investing in Car Dealerships: How to Do It Right

The financial characteristics of the automobile dealership are attractive:". .... Read More

Stocks: Reduce Risk Yet Maximize Profits

It is important to note that every smart investor wants... Read More