Before You Invest ANY Money, READ THIS!

There are many financial gurus out there with their opinions on when it is "Okay" to invest your hard earned money into the stock market or other investment vehicles. The following is my opinion.

Before you invest your money in the stock market or other investment vehicle, you've got to be able to afford it. Phil Town states in the beginning of his book, "Rule #1", "There are only two rules of investing: Rule #1: Don't lose money,,,and Rule #2: Don't forget Rule #1" (Town, 2006). This is also a rule in my strategy. However, rule or no rule, you've got to be able to afford to lose the money you invest. The following are recommendations that you accomplish prior to beginning any investment. This is probably not the first place you have read this. I know this because it is sound advice that many, many people, smarter than me, have recommended over and over. They are worth repeating. It is important that you are on a sound financial foundation first.

• Pay off your debt. You have to do this. It does not make any sense to earn 15% on your investments each year, only to be paying 19% on your consumer debt.
• Establish an emergency fund. This is also very important. The money you will invest into stocks, etc. will not be immediately accessible. I have heard many recommendations for an emergency fund. Anywhere from three months to a year of income. I've heard that six months of needed money would suffice. Here is where I stand on the topic: You need to have three to six months of "household survivability" cash available to you at all times. It does not matter how much money you make or when you pay taxes on it. This is three to six months of money that will pay your bills, put gas in the truck and feed your family. It is essentially enough money for you to maintain the same lifestyle you enjoy right now if your income went to zero.
• Max out your 401k. If you are lucky enough to have an employer that matches any portion of your contribution to your 401k plan, then you need to take full advantage of it. It's free money! If your employer will match up to 4-percent of any contributions, then you need to be saving a minimum of 4-percent directly to that plan.
• Max out your IRA or Roth IRA. This is your retirement plan. Your long term plan. This plan may be a 401k that your employer matches. Just ensure that you and your spouse contribute the maximum each year.

The most common concern with getting this criteria met before you start investing is the time that it takes. It may take some 18 months or longer to pay of your consumer debt for example. During this time, you can still learn to invest, improving your investing and trading skills by learning to "paper trade". Paper trading is the mock purchasing of buying and selling investments...on paper. No real cash involved. This allows you to practice strategies, evaluating companies and analyzing their financials.

Being successful at your investment endeavors is important to your financial security. It is critical that you invest correctly for yourself, including being comfortable and able to sleep at night with the risk level you decide to take. By putting yourself on a solid financial foundation before investing, while practicing and experimenting your strategies with "paper" instead of cash will enable you to develop the confidence you need to be a successful investor!

References

Town, P. B. (2006). Rule #1, The simple strategy for successful investing in only 15 minutes a week! New York.Crown Publishers,