When to Invest

Is investing part of adulting? The truth about saving and investing

One of the most common questions we get from students—especially those looking at graduation—is, “When should I start investing?”

What we don’t hear is, “When should I start saving?”

That’s because investments are way sexier to talk about.

You don’t hear anyone talking about all the money they make with their savings account. But you do hear stories about people who make lots of money by “playing the market.”

If savings accounts aren’t going to make you much money, then why would you put money in them instead of investments?

Because your savings account can save your booty, that’s why.

Savings accounts prepare you for life’s little (and big) emergencies

Picture this: you’re moving right along, living a happy life, when all of a sudden your car breaks down and you’re faced with a $1,500 bill.

That same week, you break a tooth and need an emergency root canal, which costs $900. Then you get word that your apartment building is getting turned into condos, meaning you have to find a new place—and pay a new security deposit.

Do you have the money to pay for all this? And can you get your hands on it fast?

If you have a well-fed savings account, you’ll probably be okay. An investment account won’t be much help.

Savings accounts are your short-term funds. What you put in savings is supposed to be your emergency fund, as well as money that you are saving every month—via your budget—to spend on something down the road.

Your savings is much more accessible than your investments, meaning the withdrawal process is easier.

Still, that doesn’t mean you should dip into savings when you need some extra cash. It’s there to prevent you from going into economic hardship (i.e., the money that’s there has been saved for the things you want).

Feed your piggy bank first

When you get paid, put at least 10 percent of your take-home pay into your savings account, and then spend the rest as needed.

Why?

Because it will help you learn how to live with less, meaning you’ll spend less money each month. And let’s be real. How often do you think you’ll actually put money away if you wait to see how much you have “left over” every pay? Not very often.

The right time to invest

Once you have three to six months of emergency expenses put away, you can start to dabble in investing.

Investing can be incredibly intimidating. You are about to take your money and entrust an external entity (e.g., economy, business, etc.) to help it grow to fund something a long time from now. Not only that, but the number of options you have to invest in are, essentially, limitless. So how do you even know where to begin?

Find the right investing pathway for you

There are websites that will do the investing for you for a small fee. Or you can ask an investment broker/financial advisor for help. You can even go it alone and invest via an online brokerage.

The important thing is that you do what you’re most comfortable with and that you do your research before you make any decisions about how to invest.

What’s your risk tolerance?

One of the things that you will have to decide is how much risk you’re willing to put up with when it comes to investing. If you want to invest to make lots of money relatively fast, you’re going to have to be willing to put up with more risk.

You must also remember that despite the fact that the market over time trends up, no investment is a sure thing. Back in the 90s, you could have thought Blockbuster Video was the future and here to stay, or maybe you thought Borders would be king of the bookselling world.

Despite the fact that the markets have been—for the most part—trending upward since then, you would have lost whatever money you invested in those companies.

Let your employer help fund your investments

When it comes to investing, the smartest thing you can do is to take advantage of whatever your employer’s retirement plan provides.

If your company provides a 401k matching program, you should be taking advantage of that by putting the highest amount you can to meet the match. Your goal should be to get at least 10 percent of your salary into your retirement fund every month, even if your employer’s program won’t get you to that level.

The bottom line is savings and investing are crucial to your short-term and long-term financial viability. However, savings is the foundation that allows you to get to the investing stage.

If you are able to navigate both of these crucial personal finance skills, you will be putting yourself in the best possible position for financial success throughout your life.