• About
  • Mortgage Basics
  • $40K Challenge
  • Aunt Doris
  • Grandfather Says
  • Privacy
  • Archives

Len Penzo dot Com

The offbeat personal finance blog for responsible people.

4 Tests That Signal You’re Financially Ready to Start Investing

By Tex Freitag

Profitable investing grows your wealth to outpace inflation, and the average investor will be better off than the average saver in the long term.

Investors often put money into stocks, forex, precious metals and real estate among others. Interestingly, the value proposition of investing often encourages many people to jump onboard the investment bandwagon without making adequate preparations.

However, it’s also true that ill-prepared investors often rush out of the markets before their investments have had a chance to mature enough to yield reasonable returns. For instance, investors attempting commodities, forex or CFD trading activities might rush out of potentially profitable trades at the first sign of a dip just because they’re scared of losing their money.

If you’re in a financially-secure position, you’ll find it much easier to invest with a long-term focus. With that in mind, here are four personal finance tests you ought to pass before becoming an investor:

Test 1: Do you have a budget?

Having a budget for your personal finances is the first step towards setting up shop as an investor. A budget helps you allocate your income towards financial obligations, which puts you in a better position to know how much cash you can afford to apply towards investments. Of course, if you’re serious about investing, a budget can help you track and prune your expenses so that you can set aside a reasonable amount for your investments each month. Budgets also protect you from making emotional impulsive decisions to cash out of your investments prematurely.

Test 2: Do you have an emergency savings fund?

Having an emergency savings fund sounds obvious; yet, we can’t overemphasize its importance in helping you succeed as an investor. An emergency savings fund is a stash of money enough to cover your living expenses for at least six months. The presence of an emergency savings fund ensures that you won’t be forced to dip into your investments when you hit a rough patch in your finances — which can damage your investment portfolio.

Test 3: Are you debt free?

Getting out of debt has some obvious advantages such as improving your credit score and helping you to sleep better at night. Interestingly, being debt free can also make it easier for you to succeed in your investment pursuits. To start with, it doesn’t make sense to keep paying credit card debts at 7.5% interest while pursing investments that are yielding 5%. Paying off debt helps you to make smarter investment decisions too. If your net worth is in the black, then you’ll be less likely to jump on long-shot investment opportunities promising huge returns because you won’t be desperate for the returns.

Test 4: Do you have retirement savings?

Many people think that the returns on managed retirement accounts such as 401(k), 403(b) and Roth IRAs is too small and that they can do better managing their retirement fund. If you have the investment experience and expertise, then you might be able to pull it off successfully. However, some people with negligible investment knowledge and experience often think that they can delay saving for retirement because they can always start investing tomorrow and quickly earn a million dollars. It’s in your best interest to calculate how much you’ll need to sustain a decent lifestyle in retirement. After you create a plan for saving towards that target, you can then invest your remaining income to your heart’s content.

Photo Credit: stock photo

May 19, 2017

Trackbacks

  1. 4 Tests That Signal You're Financially Ready to Start Investing via LenPenzo.com - Jimmy Roland says:
    May 23, 2017 at 10:03 am

    […] 4 Tests That Signal You’re Financially Ready to Start Investing […]

The Question of the Week:

How much is your Christmas gift budget this year?

View Results

Loading ... Loading ...

Disclaimer

This site is for informational and entertainment purposes only, and the content herein should not be mistaken for professional financial advice. In fact, making investment decisions based on information published here, or any other website for that matter, is more than unwise; it is folly. This website accepts advertising in the form of monetary and other compensation; as such, topics of discussion are occasionally influenced by these advertisers. Sometimes, an article may also include affiliate links, meaning, at no additional cost to you, this blog earns a commission if you click through and make a purchase (for example, as an Amazon Associate I earn from qualifying purchases). Remember, you and you alone are responsible for the decisions you make in life, so please contact an independent financial professional for advice regarding your unique personal situation.

Sign up for the weekly Len Penzo dot Com newsletter
Len Penzo dot Com Delivered Weekly
Join more than 40,000 readers and fans who enjoy personal finance and macroeconomics with an offbeat twist!
Invalid email address
Thanks for subscribing!
How to Save Money: It Starts with the Right Mindset
In Memoriam: A Tribute to Andy D.
More Clever Low-Cost Homemade Gifts Everyone Will Enjoy
10 Old Wives’ Tales Masquerading As Financial Rules of Thumb
Black Coffee: Coins of the Realm
How to Make the Most of Your Military Benefits
One of the Biggest Money Mistakes a Household CEO Can Make
9 Ways to Save Money When Buying a Car
Exploring the Benefits and Process of Opening a Foreign Bank Account with Incluence
How to Trim Your Christmas Shopping List

All-Time Most Popular:

  1. 1. 19 Things Your Millionaire Neighbor Won’t Tell You
  2. 2. Dear Friend: Here Are 41 Reasons Why I’m NOT Lending the Money
  3. 3. Why Your Expensive Luxury Car Doesn’t Impress Smart People
  4. 4. If You Can’t Live on $40,000 Annually It’s Your Own Fault
  5. 5. 21 Reasons Why Corner Lots Are for Suckers
  6. 6. 4 Smart Reasons Why College Isn’t for Everyone
  7. 7. 18 Fast Facts About Social Security Numbers
  8. 8. My Ketchup Taste Test: Upset! Guess Which Brand Topped Heinz
  9. 9. Why I Prefer a Spreadsheet to Track Expenses and Manage My Finances
  10. 10. Here’s a Simple Trick for Getting Credit Card Interest Charges Waived

Popular Now:

  1. 1. How 6 Tiny Money Leaks Cost Me $2802 Annually
  2. 2. The 5 Worst Store-Brand Grocery Products
  3. 3. The Ethics of Found Money: Should You Keep It?
  4. 4. My 13-Year-Old Daughter Shares Her Financial Fears
  5. 5. My Personal Journey to Financial Freedom
  6. 6. Why I Run My Household Like a Business (and Why You Should Too)
  7. 7. 5 Ways You Can Save Money on Groceries This Week
  8. 8. 7 Great Careers That Don’t Require Experience to Start
  9. 9. Historical Gold & Silver Benchmarks for Wages and Commodities
  10. 10. 4 Good Reasons Why Some Quarters Are Painted Red

Copyright © 2023 Len Penzo dot Com · All Rights Reserved · Designed by Nuts and Bolts Media

© Len Penzo dot Com 2008–2023