Investing in stocks is just one part of your financial life. Before you begin a program of investing in stocks, you should get your financial life in order.
Here are steps you should complete before beginning a program to invest in stocks:
Emergency Funds
Every household needs an emergency fund to see them through financial disasters, such as losing a job or a major illness.
Many financial experts say a six-month cash reserve is the minimum. The fund should be sufficient to pay all of your major bills (food, housing, medical and so on) for six months.
If the problem may take longer than six months to resolve, the emergency fund will buy you some time to make adjustments in your lifestyle (less expensive housing, cars and so on).
The fund should be perfectly safe from loss, which means bank CDs or other secured funds - absolutely none of your emergency fund should be in the stock market (mutual funds or individual stocks).
Tips on how to: Build a Six-Month Emergency Reserve.
Make Your Wishes Known
Every family should have a will, especially if you have children or other dependents. In addition, if you own real estate or valuable assets, a will can clear any confusion.
Estate laws vary from state to state, so it is important to connect with a professional who can prepare your will appropriately. Not only do you need to let your survivors know your wishes, but also a well-prepared will can spare them additional financial burdens and costly legal proceedings.
Tips on planning your estate at: Estate Planning Basics.
Retirement Planning
Retirement planning is not something you should put off until later in life. Start with your first job as an adult and when the time comes, you'll be much better prepared for the financial needs of retirement.
However, no matter your age, retirement planning is an important part of putting your finances in order.
Stocks will figure into your retirement plans, but there are some beginning steps.
If your employer offers a retirement plan such as a 401(k), that is the place to start. Many employers will match part of your contribution with some incentive about, such as 50 cents for each dollar you invest up to a certain percentage. This is free money and not to be ignored.
If you do not have access to an employer-sponsored program, look into the other options such as IRAs and annuities.
Funding a retirement program should come before investing in stocks outside of such a program.
For tips on: How to Begin Saving For Retirement.
Short-Term Financial Goals
Short-term financial goals are those you hope to accomplish in five or fewer years, such as saving for a down payment on a house, new car and so on. The stock market is not the right place to save for short-term goals.
For tips on Setting Financial Goals.
Protect Your Assets
Insurance protects you from catastrophic losses, whether it's your house, your income or your life.
It doesn't make sense to work hard accumulating assets only to lose them all in a disaster.
Property insurance, including home and vehicles; health insurance, life insurance and disability insurance all protect you from their respective disasters.
For tips on: The Insurance Basics.
