It's a myth that you have to be rich to invest. It helps, but you can actually start investing with very little money. That doesn't mean you should, though. There are a few financial milestones you should hit before diving into it.
Recently, we broke down the common myth that you need a lot of money to invest. There are plenty of mutual funds that let you buy in for as little as a hundred bucks. You can read more about the myth at the link above, but the point is: there are a few things you should have in order before you decide to use your money for investing in the stock market.
- Save for an emergency: Have cash on hand to get you through tough times. In an emergency, you don't want to dip into investment accounts. That could mean hefty taxes and fees.
- Pay your high-interest debt: You should pay off any high-interest debt before you think about investing. The interest you pay on that debt will most likely cancel out your investment return. In fact, finance site Luke1428 takes this a step further and suggests you should have all of your non-mortgage debt paid.
- Establish a financial plan: We're all about paying yourself first, which means saving your money before you have a chance to spend it, but you should have a budget or financial plan in place. You want to have control of your money and know what you're doing with it before putting it in the market. Do you research, learn how to set up a basic portfolio and figure out how it works with your current budget. Make a list of your financial goals, too. Depending on what you're saving for, the stock market may or may not be the best place to park your savings.
- Make sure you're adequately insured: Don't skimp on insurance. Of course, you don't need every policy under the sun, but you want to make sure you're adequately covered in case of an emergency. We've told you how to figure out how much and what kind of insurance is right for you.
In short, saving for the future is smart, and investing can help you do that. While you can get started with little money, it's probably not a good idea until you've hit these milestones. You want to have a plan and a safety net, and you certainly don't want debt holding you back.