Financial Readiness: 9 Steps Before You Invest

Let’s be honest — investing sounds a lot sexier than building an emergency fund. But the truth is that many people get into the stock market before they’re financially ready for it, and while the opportunity for financial freedom is appealing, the risks associated with investing may end up causing more problems than they solve.

Investing is more accessible than it ever has been, with more and more brokers offering commission-free trades and low or even no minimum opening balance requirements. The rise of fractional shares has also made it easier to invest with less money. But before you try to get in on the next Apple or Tesla stock, it’s important to make a few other money moves to build a foundation.

9 financial steps to take before you invest

It can be frustrating to see the stock market rise if you’re not benefiting from those gains, especially if it feels like everyone around you is. But while we’re still experiencing the longest-running bull market in history, stocks don’t always go up in the short term. Taking the right steps now to shore up your finances can help ensure you’re ready for both the ups and downs.

Build an emergency fund

One of the most important things you can do for your financial plan is to establish an emergency fund.

An emergency fund gives you the safety net you need if something goes wrong, whether it’s your car breaking down, your home needing repairs, or losing your job. If you put that money in the stock market and your investment backfires, you may not have as much as you need to weather the storm.

As a result, it’s best to store your emergency savings in an account that offers safety and liquidity. A high-yield savings account is often the best savings account for building your emergency fund.

Many financial experts recommend having at least three to six months’ worth of basic expenses stashed away in an emergency fund. But you don’t necessarily need to max that out to feel secure. Get to a point where you feel comfortable, and you can start working on other steps while still building your emergency savings little by little.