Investing is an incredible way to build wealth over time. Even better, it’s a path to wealth that’s open to almost any adult American, regardless of age, race, sex, career, or education.
The key challenge with it, however, is that investing is as much a mental game as it’s a financial one. You need to have both the right state of mind and the right financial foundation in place before you start if you want to maximize your chances of investing successfully.
Within that framework, 2021 can be an incredibly powerful year in your journey. You just might be able to make it the year you start investing if you begin with a plan to get both the mental and financial foundations in place. These six steps will help you get from where you are now to where you need to be to start investing.
1. Understand where your money is going today
In order to invest, you must earn more money than you’re spending. If you find yourself in a situation today where you’re out of money by the time your next paycheck comes in, you’re not yet at the point where you can invest. By understanding where your money is going, you can make better choices designed around which expenses really matter to you, in order to begin investing.
Start by tracking every penny you’re spending for two months. Use a spreadsheet, pencil and paper, financial-tracking software — whatever tool you’ll actually keep up with. Your goal is to capture all your costs, so be sure to also include an estimate for your expenses that don’t always happen monthly, like insurance, holidays, and birthdays.