The first time I invested in the stock market, I was in a business class in high school. It was a virtual stock exchange, so the money wasn’t real. It’s a good thing too because I lost 25 percent of my original balance in just a few days.
My experience taught me that investing in stocks is risky business and that knowing how to invest money properly requires more than a brokerage account.
In fact, an investment doesn’t have to be tied to stocks or a retirement account at all. An investment also can be a savings goal, a debt payoff goal, and more.
That’s why it’s important to learn how to invest your money in a way that helps you build wealth and security for the future. Here’s how you can get started.
How to invest money and prioritize your investments in 7 steps
Learn how to invest money for your future and protect your investments from the unexpected with these seven steps.
1. Invest in an emergency fund
There’s no point in investing your money if you have to withdraw some of it when your car breaks down or your water heater leaks.
To protect yourself from small emergencies, set aside at least $1,000 in a separate savings account you can access easily. You’ll want to contribute more to this account later, but for now, get to that $1,000 balance and avoid using it except for legitimate emergencies.
By having an emergency fund handy, you’ll free up larger chunks of money you can devote to retirement accounts, debt, and other investments.
2. Invest in your 401(k) match
If your employer offers a 401(k) and matches some of your contributions, invest at least enough money to get the full match.
For example, say you earn $50,000 and your employer matches up to 3 percent of your 401(k) contributions. Each month, you’ll contribute $125 and your employer will add another $125 to your account:
$50,000 x .03 = $1,500
$1,500 / 12 = $125
That’s an immediate return of 100 percent on the money you invest in your retirement account. No matter where else you put your money, you won’t beat that kind of return so quickly. And you don’t need to know anything about how to invest your money to do it.
3. Invest in getting properly insured
No one will argue that insurance is as sexy as investing. But just like small emergencies can set you back financially, big ones can cripple you.
For example, life insurance is a must-have if you have kids or other people who depend on you financially. Even if you don’t, you might want to consider getting a small policy to cover funeral and other final expenses.
A funeral can cost between $7,000 and $10,000, according to Parting.com. An inexpensive term insurance policy is the best option for most people.
You might argue that disability insurance is even more important. That’s because more than 25 percent of 20-year-olds will become disabled before they retire, according to the Social Security Administration.
There are two types of disability insurance, both of which help replace lost wages:
- Short-term disability insurance: It typically covers you for a few months to up to a year. There might be a short waiting period of up to 14 days before you start receiving benefits.
- Long-term disability insurance: It typically covers you until you recover or reach retirement age. There might be a waiting period of a few months before benefits start to kick in.
Health insurance is also essential since you’re more likely to take a trip to the doctor than to become disabled or die.
To make insurance more affordable, you might be able to get some or all of these insurance policies through your employer at a lower rate. If not, shop around to see which insurance company offers the best value for your needs.
4. Invest in paying off high-interest debt
If you have credit card debt or any other debt with an interest rate of, say, 8 percent or higher, pay it off as quickly as you can. Although paying off debt isn’t as exciting as investing, you’ll likely save more in interest than you would earn by investing that money in the stock market.
Plus, once the debt is gone, you can take the amount you were putting toward your monthly payment and invest it elsewhere, such as your retirement account.
5. Circle back and invest in your retirement and emergency fund
Once you’ve gone through the first four steps, it’s time to ramp up your rainy-day fund and retirement investments.
For your emergency fund, set a goal to save enough to cover three to six months’ worth of basic monthly expenses. This number should include only your necessary expenses, not extras such as eating out and entertainment.
For your retirement savings, aim to save 10 to 15 percent of your gross income. Fortunately, your 401(k) match counts toward this number. So, if you’re contributing 3 percent and your employer matches it with another 3 percent, your retirement savings rate is 6 percent.
At this point, you also might consider opening an Individual Retirement Account (IRA), which can give you more control over your investments and offer better tax advantages. For example, investments in a Roth IRA grow tax-free, whereas the taxes on a traditional 401(k) investment are deferred until you retire.
And if you don’t know how to invest money, you can consider using a robo-advisor to do the work for you.
The amount you save for these two goals is up to you, but try to target a figure within those ranges to make sure you’re on the right path.
6. Invest in a college savings account
If you have or plan to have kids and want to help them pay for future college costs, there’s no time like the present to start.
You have a few options:
- 529 College Savings Plan
- 529 Prepaid Tuition Plan
- Coverdell Education Savings Account
- Roth IRA
- Brokerage account
Each option has benefits and drawbacks, and some might require that you know how to invest money, so be sure to compare them all to find the right one for you.
You might be tempted to start saving for your child’s college fund as soon as they’re born. However, consider prioritizing saving for your retirement first. In the end, college students can take out student loans, but there’s no such thing as a retirement loan.
7. Work on building toward other investing goals
Now that you’ve covered all the most important bases, it’s time to work toward other investing goals.
Maybe you want to take a nice vacation with the family, buy a nicer house or car, or save up to start your own business. These goals might be the reason you’re trying to learn how to invest money in the first place.
Whatever your goal is, you can start working toward it knowing that all your other financial needs are taken care of.
You can use a simple savings account or a brokerage account to work toward these goals. The important thing is finding an investment strategy that fits your needs and preferences.
Start with a solid foundation and build upon it
If you’re still trying to figure out how to invest your money in the best way possible, use the above steps to lay a solid foundation so the unexpected won’t derail your investments down the road.
It might not feel like you’re racing to the finish with fast-paced trading and high returns, but you’re more likely to reach your goals this way.
So, as you’re trying to sift through all the advice for how to invest money, remember that slow and steady wins the race.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|