If you’re a 20-something, you may have considered starting to plan your investments to secure your financial future when you’re retired, especially if you’re a few years into your chosen career. However, retirement planning is a process that’s significantly more complex than saving as much money as possible each year, so it’s critical that you be careful with your investment planning strategy and seek help from an experienced professional. That being said, there are certain indications that you’re ready to start investing, no matter how little knowledge you have of this subject.
When You Should Start Investment Planning
Here are four signs that you’re prepared to begin investing:
Your Employer Offers A Retirement Plan
If you have access to a retirement plan such as a 401(k) or 403(b) (for public school employees) through your job, take advantage of this, whether or not your employer matches your contributions. This is an excellent first step toward investment planning because a fixed amount from every paycheck you receive is saved.
If your employer doesn’t offer this type of plan, consider opening a traditional individual retirement account (IRA) or a Roth IRA. Contributions to the former type of IRA are tax-deductible (post-retirement withdrawals are taxable, however), while those to the latter type of IRA aren’t tax-deductible. With traditional IRAs, there are also required minimum distributions (RMDs) at age 72. If you have a Roth IRA, you can withdraw contributions at any time without penalties or taxes.
You’ve Created An Emergency Fund
As a rule of thumb, it’s a sound idea to build an emergency fund that has at least three months’ worth of routine expenses. This can help you be financially prepared for unexpected life events (serious illness, death of a loved one, losing your job after mass layoffs at your company, etc.). It’s alright to use some money from your savings account to pay for monthly expenses like rent, food, and utilities in emergency situations, but you don’t ever want to completely drain your savings. That’s where the emergency fund comes in. If you don’t have a stable income (e.g. you work freelance) or you’re the sole breadwinner of your household, consider having a larger emergency fund (e.g. at least six months of expenses).
You Have Extra Money At The End Of Every Month
If you have money to spare at the end of each month even after paying all your bills (including debt) and your emergency fund is in good shape, this is a clear sign that you’re good at managing your finances and that you’re ready to start investment planning. However, remember that the key to investing is beginning small and allowing your money to grow over time. Be patient and you’ll soon see how much of a return you can earn by investing small amounts of money every year, especially as you get closer to retirement.
You’re Ready To Work Toward Your Long-term Goals
As with nearly any financial endeavor, it’s important to establish long-term objectives before investing. This can help you have a sense of direction. Your primary financial goal could be living comfortably upon retirement, saving for your children’s college education, or buying a new home. Whatever it is, make sure you’re as realistic and specific as possible and that you communicate it clearly to whoever you hire as a financial planner.
Investing can be an extremely rewarding process, and you have to start somewhere. Therefore, don’t hesitate to begin by investing small amounts (e.g. $25 per month). You can soon see your money grow each year in ways you could have never imagined.
Contact the Investment Planning Experts
Speak to the professionals at Inflection Advisors to learn more about when you should start investment planning. We’re a Los Angeles-based financial planning firm dedicated to helping clients develop a strong investment plan. Regardless of what your financial history and current situation are, we will work tirelessly to ensure you achieve your goals.
Our five-step process for ongoing financial growth begins with data collection, as this is key to gaining a sense of where you wish to be in the short and long term. It continues with an analysis stage and recommendations to help you attain your goals. Then comes the implementation phase, during which your investment plan is rolled out. The process ends with routine monitoring to ensure you’re staying on track. This can take the form of monthly or quarterly meetings. Call Inflection Advisors today at (424) 372-8399 or contact us online for more information about our financial planning services.
