Preparing to Invest

Investing is taking your existing spare cash and putting it into a variety of financial instruments in the hopes of turning a profit. It is an essential step needed for those who have financial goals of buying their own home, sending their kids to college, or retiring one day. But it is important not to put the investment before the evaluation of your financial situation, so before you begin to plan to invest, take a deep look at your current financial situation and lay the groundwork for a sound investment strategy.

A necessary step prior to investing is analyzing your current state of financial affairs. That doesn’t just mean shaking your piggy bank to ensure that you have some spare change, it means delving into your total financial scenario to clean up any outstanding debts or situations that will affect your investment strategy.

The first baby step into investing is ordering your credit report, getting a full overview of your checks and balances, and then taking the appropriate steps to clean up any bad debt that may be outstanding.

For example: Say you wanted to start investing with $2,500, but have an outstanding credit card debt of approximately that amount. By taking the money to pay off your debt you will not only help improve your credit score, but it may actually save you more money in the long run. If you are lucky enough to find an investment that pays 8% interest, but your credit card balance is saddled with an interest rate of 18%, you will end up saving a difference 10% more just by using that money to pay off your existing debt before you start investing.

Building Wealth

Your next step would be trimming the fat off of your monthly expenses. By building a solid monthly budget on a spread sheet and tracking where ever penny goes, you may discover unnecessary expenses that can be better channeled into paying off bad debt or even being set aside into a savings account. That money saved can eventually become the start-up money for your investment strategy.

Once you organize your finances properly, and honestly assess your financial situation – you will be able to get a better grip on your entire financial situation. When you take the time to pay down your bad debt and trim the fat, you may discover additional revenue streams that indeed can be budgeted for investing and building a healthy nest egg for yourself.

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About the Author

GOBankingRates Staff

These articles are written by the in-house GOBankingRates team.

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