Well, if you find yourself in the category above, do not fret. You are not alone. This article will be the first of a series of articles to address these questions.
When is the right time to invest for my future?
While many financial advisors will tell you to begin investing today, we’re going to take a little bit of a different approach. Yes, today is the right time to begin preparing for the future. However, that does not necessarily mean that you are ready to invest monies for the future.
The first step in preparing for the future is organizing your finances. You might start by noting exactly how much income you bring in each month. Once you have calculated this out, you need to tally out your expenses.
Write down everything you spend in a month. If you’re not sure where to start, look at last month’s expenses. Go off of those. You should have an idea of what you spend on average at the grocery store, in utilities, etc. After you have written down your expenditures, create a list of upcoming expenditures. This can be for the following month or this can be for an annual basis.
For example, you know that at Christmastime, you will purchase “x” amount of dollars, so total that amount and divide it by 12. Now you know exactly what that expense is for each month. This principle can be applied to things like car insurance, vehicle registration, HOA fees, taxes, etc. The whole point is to spread out the expense over a period of time that way your checkbook does not take a huge hit all at once.
It’s important to note that you cannot plan for every expenditure. However, you can prepare to the best of your knowledge. The important thing is to prepare.
Once you have established a budget (Did you realize that was what you were doing above?), begin taking a more in-depth look at your finances. Exactly where is the majority of your money going? If you still are not certain from the picture you’ve painted with the budget, monitor everything for a month. Save all of your receipts and track all expenditures. Then, come back to this question at the end of the month.
See where you need to adjust the budget. See where you can cut back.
Look at your debt to income ratio. This is the biggest part before jumping into investments. Often times, people begin investing monies when they owe on outstanding debts with higher interest rates. They would be wiser to pay off these debts first, and then, begin paying into an investment account. Otherwise, they’re losing money. The debt is accruing interest, which means more debt, faster than the investment is making money.
As to getting out of debt, this is another topic of discussion. There are various ways to climb out of debt it just depends on the individual and what he wants to do. In addition to getting out of debt, an individual needs to set up a savings plan. Again, this is another discussion as to what is the best savings plan.
At any rate, once you have established your budget, devised a plan to eliminate all debt, and set up a savings plan, then you can begin talking about a retirement plan / financial investment opportunities. The whole point is to start preparing today, so that you can begin investing as soon as possible.