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

Zell Opts for Debt Investing, Awaits Housing Rebound (Update2)
Bloomberg - 5 hours ago
21 (Bloomberg) -- Billionaire Sam Zell, founder of the largest publicly traded apartment landlord in the US, is investing in distressed debt instead of real ...

carpages
GM investing $500 million on Cruze
Detroit Free Press, United States - 5 hours ago
By KATIE MERX • FREE PRESS BUSINESS WRITER • August 21, 2008 LORDSTOWN, Ohio — General Motors Corp. today gave the first public peek at the design of the ...
GM To Make Chevy Cruze Investing 500M In Small Cars HULIQ (press release)
GM, With an Eye on Profit, Invests in Ohio Plant New York Times
US: GM announces US$500m investment at Ohio plant Automotive World (subscription)
Youngstown Vindicator - WYTVall 304 news articles

Investing in the Olympics
U.S. News & World Report, DC - 7 hours ago
The S&P 500 and the Dow have tumbled over the past year, but here's one unlikely index that's posting respectable returns: the Dow Jones 2008 Summer Games ...

Money Tip: For online investing, PCs beat Macs
Baxter Bulletin, AR - 5 hours ago
A lot of investing-related software is only available on Windows. Microsoft is better at ensuring that files and data you have created in its operating ...

Mergers and Acquisitions Offer Unique Investment Opportunities ...
MarketWatch - 11 hours ago
That's the conclusion of the latest Taking Stock commentary by members of the Core/Value Investing Team at Turner Investment Partners. ...

Van Kampen Trust for Insured Municipals Changes Policy on Insurers ...
MarketWatch - 4 hours ago
The Trust seeks to achieve its investment objective by investing primarily in insured municipal securities. The Trust is not changing its investment ...

Investing in wine Buyers and cellars
Economist, UK - 10 hours ago
Speculators are allowed to buy a portion of the stuff in the hope that the wine proves to be a hit with the retail and investment market two or three years ...

XShares Advisors LLC Announces Strategic Realignment for ...
MarketWatch - 3 hours ago
An investor should consider the fund's investment objectives, risks, charges and expenses carefully before investing. For this and more complete information ...

The Lazy Investor's Guide to Retirement Success
Motley Fool - 11 hours ago
By John Rosevear For many of our Foolish readers, investing is a passion. But I know that for some of you, it's just something that needs to be done, ...

RBC Direct Investing expands offering with Model Portfolios
Canada NewsWire (press release), Canada - 11 hours ago
21 /CNW/ - Do-it-yourself investors at RBC Direct Investing now have access to a new feature that makes it easier for them to create a personal investment ...
Buying mutual funds? Here's some advice Rediff
With funds, buy and hold doesn't always pay off Globe and Mail
all 7 news articles

Wind Chimes and more...

Windchimes for great gifts!

Mutual Fund Returns May Not Be As They Seem!