Let’s say you are a young college grad who picked up a job and now has a little bit of extra money around that you are thinking about investing. Before you do anything, you should learn how to invest wisely so you don’t end up wasting your money or selling yourself short on the market.
The first thing you need to do before you decide to invest your money is to pay off any debts. Credit card debt should go first and foremost, as this interest is often much higher than even your retirement account can generate. Credit card debt will bury you, so if you have it you need to get rid of it before you put a single cent into the stock market let alone any other bills you may have.
Next, you need to pay off any high interest loans you have. This could include your car or your student loans. If you get a 0% financing on a car, then you don’t want to pay that off until you have to – it’s better to invest your money and instead pay of student loans or whatever else you may have.
Once you pay off any high interest loans, you need to max out your retirement account. This includes making the maximum contribution to your 401k as well as opening a Roth IRA and maxing out your contribution to that. YOu can move this money around as you please, but make sure you do it through these funds long before you actually put your own money directly into a broker.
The reason for this is that these funds get a lot of tax breaks and sometimes you do not even have to pay tax on them at all. If you are able to do this tax free then naturally you will be able to invest much more money.
After investing tax free money, if you have a mortgage you would wanted to pay that off. If your mortgage is paid or you do not own property, you have no debt, and your retirement accounts are maxed out, then you can actually get down to the business of learning how to invest your own money directly in the stock market.
However, very few people will ever actually earn enough money to pay off all their bills, max out their retirement accounts, and still have money leftover to invest.