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When I graduatedcollegeand landed my first full-timejob, I knew I was supposed to savemoney.
Getty / Jose A. Bernat Bacete
But after that, I didnt really know what I was saving for.
Id heard, time and time again, that it was important tosave money.
Recently, I was talking to a coworker who voiced the same concerns I had a few years ago.
This article is an attempt to answer that question.
Quick note: Everyones financial situation is unique.
If youre looking for more of a beginners guide to personal finance,click here.
Before you make moves to do anything investment-wise, its important to understandwhyyou want to do it.
What goals are you working toward?
And how is investing going to help you reach them?
Do you want to buy a house?
Great, how many years from now, and how much do homes in your area go for?
When will you get started, and what do you think you’ll have to do to begin?
Do you want to pay for your own wedding, start a family, or pursue continued education?
Write all these things out, and give them specific price tags and deadlines.
Then, prioritize your goals.
Marrying these elements is key to creating a plan that works for you, he says.
Lets say youve completed the first two steps, and youre feeling great.
Hold the phone, Boneparth says.
Have you paid off any debt you have?
Are you on top of your bills?
Are you paying off your credit card in full every single month?
If so, keep going.
(Not sure how much your monthly expenses are?
If youve completed Step 2, you should have a clear idea, Boneparth says.)
If you dont have a rainy-day fund yet, focus on saving for that first.
If you do, keep reading.
If youre not, get the free money, Boneparth says.
If you are, move on to Step 4.
Its time to pull out that list of goals you made in Step 1.
Are any of these goals just around the cornerless than four years away?
Youll need to squirrel away cash, and do it stat.
Lets say you want to make a down payment on a house in two years.
If a goal is more than four years away, congratulations, its investment time.
But how do you know where to put your moneyor how much of it to put where?
That depends, again, on your timeline.
What does a more aggressive investment actually look like?
Its probably something more heavily weighted in stocks, Imbeault says.
That could mean an individual stock or stock-heavymutual fund(bundle of stocks, bonds, and cash).
Youll first want to determine how risk-tolerant (or risk-averse) you are.
If youre risk-averse, you prefer to play it safeyoull take modest growth over high risk any day.
You might also fall somewhere in between.
Once youve got that locked down, consider how involved you plan to be in your investment strategy.
Are you more into the idea of taking a backseat and letting the professionals handle it for you?
Remember those goals you set way back in Step 1?
Youll want to revisit those at least once a year to ensure youre moving in the right direction.
(Move away from a stock-heavy strategy and toward something more stable.)
Keep circling back to your goals, and ask yourself some basic questions about each one.
Are you making enough money each month to reach that goal on time?
Does the investment strategy you picked for that goal still make sense?
Are you as on top of your finances as you expected?
If the answer to any of these is no, its time to make some changes.
