For the August 2023 issue of the AAII Journal, I revived the Beginning Investor column with the article “Starting on the Road to Investing.” If you’ve been following along with me but haven’t started investing, I hope the article serves as a helpful distillation of what I’ve learned about my own finances so far!
Writing the article forced me to go back to basics and determine how each stop on the road to investing built the foundation for the next one. My investing journey was nowhere near as linear as the article’s order suggests, and yours doesn’t have to look perfectly tidy for you to start now.
I discuss each step, the tools required and the difficulty level below, along with my own experiences. Each section has a link that will take you to my first blog post on the topic. None of these are destinations, but ongoing processes you’ll have to revisit as you make progress.
Tools required: Pen, paper, computer
Creating a budget, though I long dreaded it, is an easy place to start. Not everyone has a budget or sticks to it, but it helped me demystify where my money was going and how much I truly had to play with. It also doesn’t require you to speak to a professional, unless you really want to, so this is a step that can be taken entirely on your own or with your partner. When I first started budgeting using the percentage budget, it was a huge relief to know that my fixed expenses were less than 50% of my monthly income. If I hadn’t started a budget, I would still be living in the dark, not understanding how much I was spending until it came time to pay the bills.
Tools required: Computer, savings account, discipline, time
Building up my emergency savings fund was the first thing I did when I graduated college and started working. Before I even heard the adage “pay yourself first,” I was saving as much as I could in a kind of competition with myself. (I’m not usually competitive, but I guess my worst enemy is myself!) Whenever I wasn’t spending money at Sephora was a good time to slide some of my leftovers into savings. Your emergency savings fund should have three to six months of living expenses—for the good, the bad and the fun things you’ll need it for in the short term.
Tools required: Computer, government-issued ID, Social Security number
I can’t tell you much about opening my regular savings account, but I believe it was done in person at an actual bank. This isn’t necessary, but if you’re unsure about opening a savings account, there are professionals who can help you virtually as well. When I opened my high-yield savings accounts, it was simpler than I thought it would be, but required a lot of front-end research on my part to find the right account for what I wanted to do with my savings. Interest rates are still increasing, so this is a great time to shop around for savings accounts with higher yields than your regular bank savings account, if you have one.
Tools required: Computer, materials from your employer, your budget, some mutual fund knowledge
Starting to invest in my retirement account wasn’t just hard logistically, it was also a very difficult decision to cough up the money from my paycheck. My employer-sponsored 403(b) account was eligible for contributions when I filled out the paperwork and chose which mutual funds to invest in. Except I made all those decisions without factoring in my own contribution. I couldn’t afford to live and save for retirement at the same time, so I put it off. When I created that budget I was talking about, I realized I could finally make it work.
Tools required: Cold hard facts, your budget
Only you can determine how much you need to start investing, based on what you decide to invest in and what you have available to spare. You could start with $5 if that’s all you have, but it would limit you to fractional shares or very small stocks. If you have $1,000, you could potentially invest in a mutual fund or a few exchange-traded funds (ETFs).
First and foremost, you have to invest in yourself, which means building up your savings and thereby your net worth. When you have your financial foundation of savings, any excess can be allocated to your investments and other goals. You can do hard things! Go forth, invest!