Investing can move you closer to financial freedom. Building wealth gives you breathing room, eases financial anxiety, and opens up your world of possibilities. So many single moms are hesitant to take this step – it can feel uncomfortable, even scary, to make that first investment.
After all, investing isn’t the same as saving. Saving is guaranteed money, there when you need it, no chance you’ll lose it. Investing doesn’t come with the same guarantee: You could make money, you could lose money. That’s a big part of the reason many single moms are afraid to invest.
And that’s why it’s so important to start from a place of financial fitness. To make sure your overall wealth can take the hit, you need to be in fighting financial form before you invest your first dollar. And there are specific steps you can take to minimize that risk of loss and maximize your profit potential before you sink your hard-earned money into any investment.
To give yourself the best chance of success, and the best foundation for building up wealth, do these 10 things before you invest.
- Pay off all of your credit card debt. Credit card interest rates run (on average) from 13%–23%. Paying off credit card debt and getting rid of those interest payments earns you higher returns than you’ll score on pretty much any investment.
- Create an emergency fund. Start a separate bank account for emergencies only – real emergencies, like getting laid off or paying a plumber when your basement floods. Ideally, your emergency fund will be able to cover at least three to six months of living expenses.
- 3. Know what you have and where your money goes. To get your financial plans moving, figure out your net worth and create (and follow!) a household budget. These simple tools help you keep track of your financial position.
- Develop financial goals. Before you can reach goals, you have to set them. Knowing what you want from your financial life will help you figure out the best way to get there. Whether you’re saving for a new car, your first house, a comfortable retirement, or a luxury beach vacation, spelling out the what and when dictates important pieces of your financial plan.
- Know your time frame. Your best investment mix depends on how soon you plan to use your money. Saving for a house in five years calls for very different investment choices than a retirement goal that’s 40 years away.
- Define your risk tolerance. Investing can feel like a rollercoaster ride – the markets can swing up or down without warning. Figure out how much uncertainty you can comfortably stand, and that will help refine your investment strategy – you can pick which rollercoaster you want to ride.
- Plan your asset allocation mix. Based on your goals, time frame, and risk tolerance, figure out know what proportion of your total portfolio will be dedicated to each asset type (like stocks, bonds, and cash, for example). Having a planned mix helps you make sure your portfolio is diversified – the chief way to earn returns while minimizing risk.
- Understand the big picture. Successful investors understand the financial world, starting with the big-picture global economy and how politics and policies affect the markets. Learn as much as you can about the forces that drive the markets and affect investment prices.
- Set up your brokerage account. Whether you’re more comfortable with a financial advisor to guide you or have the confidence to take a more do-it-yourself approach, you’ll need to open a brokerage account before you can buy your first investment.
- Do your homework. Analyze every investment before you buy it, and make sure you fully understand what you’re buying into. Don’t risk your money on an unknown – no matter who tells you to invest in it.