The stock market is an awesome way to grow your money faster rather than only using a traditional savings account or money market account. We often see tons of people discussing stocks on social media and why everyone should be investing ASAP. You may have come across a post saying, “Y’all are missing out on all of this money” or something similar. You may feel eager to begin your investing journey, however there are a few tasks to complete before getting started to make your life a little less stressful. There are 3 tasks that I found to be beneficial to knock out before I began investing in the stock market to maximize gains and build my portfolio quickly. No matter the peer pressure I encountered to enter the stock market, I wanted to resolve a few things that weighed me down. Here is what I did…
Clear ALL Consumer Debt
Debt is a huge financial burden that can weigh you down mentally and hurt your pockets. You may have already read about my journey on how I paid off $90,000, which was extremely rough and took a lot of self control to accomplish. When owing money to someone else, your available funds to invest shrinks. At first, I tried investing while paying off debt and was frustrated with my small portfolio and was annoyed with only being able to purchase penny stocks (stocks that are $5 or less) with minimal gains. So, I simply stopped investing, sold the stocks I had in Robinhood, and focused on paying off debt more quickly. Begin with your smallest debt first and then work your way up to larger debts, or you can start with paying off debts that have the highest interest rates and scale down from there until all debts are fully paid off. With heavier focus on debt management, I was able to clear it within 2 years. It is crazy how much more money you have once that awful burden is gone. Also, my mental state improved with having less financial obligations.
Build an Emergency Fund
Creating an emergency fund for you and your family is extremely important especially when times get tough, like with the COVID-19 pandemic and possible pay cuts and job loss for many people (women even more so). An emergency fund will vary based on the amount of people in your household and the amount of expenses you have per month. Your emergency fund is up to you but experts typically recommend having 3-6 months of expenses saved up. I recommend 6-12 months of expenses to be saved up especially with what we witnessed in 2020. Keep this money in a high yield savings account, like Ally bank, or a money market account where your funds are easily accessible. You may get the urge to invest this money, however DO NOT invest your emergency fund. It takes 3 days to get your funds once you sell shares of a company and you may experience even longer delays depending on your bank. Emergencies cannot wait 3+ days! Think of your emergency fund as security for you and your family. This will allow you to invest with no worries and quickly build your investment portfolio.
Learn the Basics
The stock market is where investors (people like you and I) can buy and sell stakes in individual companies as well as exchange-traded funds (ETFs). The stock market is measured by indexes to include the Dow Jones Industrial Average (DJIA), the S&P 500, and the Nasdaq. A stock is a share of ownership in a company or corporation. Each company has a trading symbol to represent its company. For example, Amazon’s stock symbol is AMZN. You can purchase stocks through various investment accounts to include the following that we often hear about:
- Traditional IRA
- Roth IRA
- Standard Brokerage Account
- 529 Savings Plan
There are many other accounts like Rollover IRA, Custodial Brokerage Accounts, SEP IRA, Roth 401(k) but we will get into all of those in future posts. These are just a few of the basics when it comes to starting your investing journey. Most of you have already started investing if your job provides a retirement plan and/or offers restricted stock units (RSUs), which are shares of a company granted to its employees as compensation.
Learning the basics about the stock market before investing is beneficial especially when trying to figure out how to make your first stock purchase. You may feel a little uneasy or excited when you purchase your first stock because it is something that is new to you and everything looks complicated. Research different brokerage firms, like Fidelity, and choose the one that is best for you. You can even use apps like Robinhood and Acorns for a simpler start to investing. I personally like Fidelity and enjoy their user friendly app and instant “help” chat if needed. Once you find the right broker for you, explore their website and research potential stocks you would like to buy. I started with buying stocks of companies that I love or buy products from, like Disney. Once you buy stock in a company, you are considered an owner of that company so do your due diligence when researching stock.
There is so much more I can write about but we will get into more information about investing in future posts. There is such a large amount to cover, literally years of information. Overall, these three things helped me have more clarity before I started my investing journey without the added stress about finances. Hope this helps!