Life-changing events can make even the savviest of investors rethink their game plan. And if you are a beginner to investing, sometimes it takes a life event to rethink how you handle your money.
Even though not all life events are planned, pausing to consider long-term financial implications can help create a strong investing path as your values and viewpoints shift to a new perspective.
“It’s important to remember that personal finance is personal,” says Brian Barnes, CEO and founder of M1 Finance in Chicago. Consider using an upcoming milestone, whether that’s as significant as a child’s birth or as minor as a vacation to give you a kick-start to invest, Barnes says.
[See: 10 Long-Term Investing Strategies That Work.]
Studies, such as one conducted by Edwin Locke and Gary Latham, have already found that setting specific and challenging goals lead to a higher performance for people that invest. Their results found that 90 percent of the time people are more likely to succeed when you define your goals for your money, rather than leave them ambiguous or not set investment goals at all.
“That act [of setting goals] turns saving from a hassle into something you may even look forward to,” Barnes says.
It can also make receiving a newly found influx of money the perfect time for a beginner to start a new financial habit and invest in stocks or mutual funds.
Investing for beginners: your first paycheck. Sure, it’s not typical to invest your first paycheck in the stock market while you’re still in high school or college, but consider doing this as early as possible.
“Open up a retirement account for your child as soon as they have earned a paycheck,” says Julie Wielehowski, a fee-only financial advisor for Financial Compass in Haddonfield, New Jersey. “With the benefit of compounding from a young age, it will be a major step in their future financial freedom.”
Even if you don’t learn the basics right away, it’s important to start investing in your early 20s to achieve the benefits of compound interest, especially with many Americans waiting much longer to marry and have children, says Jonathan J. Monjazi, founder and CEO of CEO Based Investing in San Diego.
Investing for beginners: starting a new job. “When you change jobs, new investment possibilities can open up to you outside of potentially restrictive deferred compensation plans (such as a 401(k) plan) that can allow you great control,” says Justin Kumar, senior portfolio manager of Arlington Capital Management in Arlington Heights, Illinois.
A new investor can learn by researching the retirement plan options available at your new workplace. “Some employers will have a minimum vesting period where you can’t participate in their 401(k) plan for a certain time period,” says Jacob Lumby, founder of the website Cash Cow Couple in Lubbock, Texas. “If the employer offers a company match, you should contribute at least enough to get the full company match as that is free money. You’ve basically given yourself a raise by getting those matching contributions.”
[See: 10 Important Investments Before Having a Baby.]
Investing for beginners: earning a raise. Unfortunately many new investors see their expenses increase as their wages increase. Instead of buying a nice car, more expensive clothes, use the money to jump-start your savings by investing in stocks or funds, if you can keep your expenses the same, says Christopher Paleologus vice president of Blue Bell Private Wealth Management in Blue Bell, Pennsylvania.
Ideally target at least half of your raise for your investment portfolio, says Julie Wielehowski, a fee-only financial advisor for Financial Compass in Haddonfield, New Jersey .“If you do this consistently before you know it you will be maxing out and you will still keep a little of the raise for “today” money,” Wielehowski says.
Investing for begnnners: before getting married. Besides all the pomp and circumstance behind planning a wedding, discussing your credit scores, outstanding debts or liens, creating a budget and sharing other financial obligations is important. Many financial experts suggest making sure your investment strategies align to help reduce and ward off any potential money problems in the future by creating a game plan for stocks, bonds and funds.
Start by figuring out what your joint income will be and what your expenses are, says Ken Moraif, a senior advisor at Money Matters, a wealth management and investment firm in Dallas. Then look for opportunities to consolidate expenses and cut costs that can be used toward creating an investment portfolio.
Investing for beginners: having a baby. When children enter the equation it means not only planning and saving for retirement but for your kids’ college fund. Look at a 529 plan, a tax-advantage savings plan as an investment to help combat the rising costs of a college education.
Another option is a Coverdall Education Savings Account for children under age 18 or special needs beneficiaries. Parents who have a modified adjusted gross income less than $110,000 for individuals or $220,000 if filing a joint return can contribute up to $2,000 a year per child in 2017.
Investing for beginners: receiving an inheritance. Depending on the type of lump sum or inheritance received, there may be some property gains or income taxes to manage. “I suggest you get a lawyer to help plan it out,” says Raeshal Solomon author of My Little Banker in Nashville, Tennessee. “Even a small inheritance invested over time can become a nice size nest egg for the future.”
Before making a rash decision, get a second opinion and really understand the full repercussions of any investing moves. “Jumping in too quick can result in losing 5 to 10 percent of your inheritance right off the top, and some investments are costly to undo,” Wielehowski says.
[Read: How to Invest an Inheritance for a Comfortable Retirement.]
It can also be a good opportunity to reset your financial life and get on solid ground by paying off credit card debt and free up cash flow to increase saving and investing, Moraif says.
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