What To Do Before You Invest (A Financial Checklist)

Disclosure: This article is written for entertainment purposes only and should not be construed as financial or any other type of professional advice.

I started investing both on a whim and with great intention.

When my power company included an insert in my monthly bill informing me of a direct investment program, I signed up. Then, I sent checks to the company on regular basis. One paid for my utilities and the other allowed me to become a part-owner of the company.

I had intended to invest all along. After all, I had studied finance in college and knew the basics of investing or at least its general purpose within the economy. The mechanics of investing, though, wasn’t my expertise, especially in the days of full-service brokers and high investing fees. So when this opportunity landed at my mailbox, I decided to invest through this program.

Still, I had spent a few years getting my finances in order so I had money and freedom to invest. Here’s what I did before investing:

Pay off credit card debt

I never intended to accumulate credit card debt. But after settling into a new job and a new apartment with minimal work clothes and no furniture, I began spending on the basics. After several months of accumulating stuff and growing my credit-card balance, I realized that paying off the debt rather than acquiring more debt was the wiser course of action. I also had installment bills at my dentist and a couple of local shops and wanted to put regular payments behind me. After making this decision and avoiding new debt, I was able to pay down the balances over several months and stay out of credit card debt.

Save regularly in a savings account

One of my first acts of financial independence was setting up a direct deposit to a savings account. Through this process, I diverted a small amount ($20) from my paycheck to my first savings account as a working adult. One of my co-workers told me the amount was too small, suggested $25 instead as I would gain multiples of $100 at a faster pace. But I knew my spending habits and my budget and was happy with this amount. The point to me wasn’t to accumulate wealth using a savings account but to start an automatic process of saving for the future.

Save for big expenses and annual bills

I developed a solid yet simple method for setting aside money for big expenses, like one-time purchases of furniture and annual auto-insurance bills. I kept a check register with the balance available for spending, which was the actual balance less money set aside for these large items. When I balanced my checkbook, I added back the held-back money; when I needed the money for the big purchase, I added the money and spent from that balance.

This approach would never work for me today (I no longer use a check register) but it worked fabulously for me at the time. I set aside money from monthly paychecks and then had the money available when needed.

Contribute to my retirement through a company plan

As soon as I became eligible for my employer’s 401(k) plan, I signed up and began contributing to my retirement. None of my employers matched my contributions. But I still saved inside the plans because I liked the ease of being able to save automatically for retirement. Plus, I could lower my income and tax liability through these contributions.

At the time I started saving for retirement, Roth IRAs (or Roth accounts within 401(ks) hadn’t been introduced). So, for me, all saving for retirement in a tax-advantaged account happened through a company plan. After I left my employers, I rolled these accounts over to an IRA and still own these IRAs. (Read more about traditional and Roth plans.)

Make sure I have health insurance (and other insurance)

Right before I landed and started my first job, my dad pointed me to a newspaper article about a young woman who got sick and ran up huge medical bills due to a brief lapse in insurance. She went without insurance for a couple of reasons: 1) she was young and healthy; and 2) she was about to start a new job, which would carry health insurance. In the matter of a few months between leaving one job and starting another, the woman became seriously ill and racked up enormous medical bills in the tens of thousands of dollars.

So, I’ve never gone without health insurance, even while in the midst of changing jobs. I may have been one of the first people to use COBRA, when I was between employer-sponsored insurance for a few months in the late 1980s.

Plus, I’ve learned to study health insurance plans and features so I know what I’m getting for my health insurance dollar. I’ve also purchased other types of insurance to ensure proper coverage for other areas of my life. (Check out Insurance Made Easy to get a handle on insurance.)

Check off your financial to-do list

These things happened without my intention of establishing a financial foundation before investing. As a numbers person with a finance background, I paid close attention to these details naturally. Plus, my first employer, a bank, fired employees for bouncing checks! I knew that stock market investing could pay off over the long term but could also lose value, so I started by investing extra money only.

To help you build a foundation, I’ve created a Ready-to-Invest Financial Checklist available for download. Use this checklist to get your finances in order and prepare for your first investment outside of your company’s retirement account or children’s college fund.

Would you like to skip one of these steps or add more steps?

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