In performing my research online, I realized that many people were asking the question, “When should I begin investing?” They want to be responsible and begin investing for their future, but they do not know if they are in the correct financial position to get started.
A few months after Dar and I got married, we were blessed with dual incomes. Since I had spent most of my life having very little extra cash, I was extremely excited! At first, we started purchasing the necessities that we had put off for a long time. For example, we purchased a dining room table set (I never knew that a table would make Dar so excited, but I suppose she was getting a little sick of our meals on the floor…). But, after we took care of the necessities, we were a little uncertain of what to do with the rest of the cash. We thought about getting a decent television (our TV is currently a 15 inch I believe, and yes, we only have one) or maybe a piano (we both love music), but these weren’t really things that we needed. With my background in finance, I decided that we should invest our savings in the stock market. So, we created an account with E*TRADE and purchased a few stocks.
As you might have guessed, while we were investing in the stock market, we still had student loans that were burdening us at 6.8% interest each month. Even though I often gain capital in the stock market, I now consider this decision a foolish one. Even if I had a yearly gain of 6.8% on my earnings (which is a decent return in today’s economy), I would only break even compared to the interest I was charged on the student loan. That is the best case scenario! The more common occurrence happens to be the worst-case scenario; losing money from the loan interest and losing money in the stock market. If I had been involved with the Dave Ramsey series back then, I would have understood that if I put my extra money into paying off the student loan, I would have a guaranteed 6.8% return on my investment.
You’ll be happy to know that Dar and I wised up and took our money out of the stock market and applied it directly toward our debt.
Make sure you get these steps out of the way before you even think about investing (referenced from Dave Ramsey’s 7-baby steps to financial freedom):
- Create an emergency fund of $1,000
- Pay off all debts except the mortgage
- Save 3-6 months worth of expenses for a full emergency fund
NOW IT IS TIME TO INVEST
If you follow these steps, understand that it might be a while before you begin investing. It honestly tears me up inside. I LOVE investing, but I now realize that if I am not debt free, the interest paid will only cancel out the capital gains. So, let’s get out of debt in a hurry so that we can invest for our future!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.