What to do BEFORE you start investing

If you’ve been thinking about investing, but you’re not sure if you’re ready, then this is for you. Here are some key steps to take before you take the next step into the world of investing.

Step 1: Do a Financial Audit

Before you can improve anything, you need to understand where you’re starting. Taking an honest look at your finances can be daunting, trust me I know. It can feel vulnerable or even a bit anxiety inducing, but it’s key to taking control of your financial future. 

Write down the following: 

• Your income (what’s coming in)

• Your expenses (what’s going out)

• Your debts

• Your savings

• Your investments

This step isn’t about judgment, it’s about awareness. You have to know where you’re starting from, but this clarity is empowering. 

Think of this as your financial “baseline.” You can’t build a plan without one.

Step 2: Build an Emergency Fund

Your emergency fund is your rainy day fund. It’s there to help you with the unexpected. Life happens; job loss, medical expenses, vet bills, car repairs, last-minute flights. I recently had a $2,500 legal bill that I’d thought my work would cover - thank goodness for my emergency fund being there at this moment. Without an emergency fund, these situations often end up on a credit card, pulling you into debt.

Your emergency fund MUST be in cash, and it should live in a High Yield Savings Account where it can earn some interest as it sits there.

• Start with $1,000 as a starter fund

• Work toward 3–6 months of essential expenses

Your emergency fund creates breathing room, gives you options, and should be viewed as a non-negotiable part of your financial life.

Step 3: Pay Down High-Interest Debt

High-interest debt, especially credit card debt, can be a huge blocker to building wealth. Debt can weigh heavily on us emotionally and can spiral out of control quickly. Before you begin investing, if you have high interest debt (ie above 7%) this should be a top financial priority. And what you need in order to do this is a plan.

Here’s what you’re going to do: 

• List out your debt & corresponding interest rates

• Choose your payoff method 

• Avalanche: pay the highest interest rate debt first (mathematically fastest)

• Snowball: pay smallest debt balance first (emotionally motivating) 

• If interest rate above 7% → prioritize this before investing

• If interest rate under 7% → pay it down steadily while also investing and saving

• Automate this if you can

Note: it’s important to pay off high interest debt (7%+) before you invest or save for specific goals because this debt compounds at a faster rate than you would likely earn money in the stock market on average.

Step 4: Define Your Goals

While this step does not need to happen in a specific order, it is a critical piece of your financial journey. It’s important to identify what you want from your money and how you want to get there. Identifying your goals allows you to articulate your why. 

Ask yourself:

• What do I want my money to do for me?

• What does financial security look like in my life?

• What am I working toward and why?

Your goals might include:

• Buying a home

• Taking time off work

• Traveling more

• Early or flexible retirement

• Feeling calm instead of stressed about money

Clear goals give your plan direction and help you stay motivated along your financial journey. 

Step 5: Start Investing

Now that you’ve completed the first 4 steps, you’re ready to invest. Investing is how you make your money work for YOU, and it’s how you build wealth. 

Here are your next steps that I will cover in my next blog:

• Learn the basics of compound interest 

• Open a brokerage (Vanguard, Fidelity, Schwab etc) - where you open investment accounts and buy investments!

• Know the different accounts 

• Roth IRA/Traditional IRA/Taxable Account etc

• 401(k)s (either through your work, or for self employed people)

• Prioritize tax-advantaged accounts first

• Decide your investing style:

• DIY investing (ETFs + simple portfolios)

• Managed investing (robo advisors)? 

• Using a financial advisor 

• Know what you are buying 

• ETFs/Stocks/Robo portfolios

• Automate what you can: $10/week, $100/month. Pay Yourself First.

When you invest, you should not be trying to get rich quick, or to time the market. Remember this is the long game, we are thinking in decades. And to get to the point of being ready to invest might take some time, and that’s okay. I want you to be ready, and to feel confident in your starting point. My next blog will cover investing in more depth.

I hope this was helpful. If you’d like to talk any of this through with me you can schedule a Money Chat below.