How to Decide if Your Finances Are Ready for Investment

planting the seeds with investments

Most of us know we need to invest our money. Inflation is a sneaky little monster that threatens to shrink our savings as time goes on, and investing is the only way to beat it. The problem is, how can we tell if we’re ready to invest?

The answer that is you’re ready to invest as soon as you’re motivated to invest.

There are so many misconceptions on investing that I’d have to write an encyclopedia to list them all. But one of the most damaging misconceptions is the idea that you need a lot of money to invest for it to be even remotely worth it.

I’m here to tell you, it’s not true.

Any money you invest is money that can potentially grow. And $50 here or there put into an investment is a lot better than $50 spent on dinner and drinks out because you felt like it wasn’t enough to do much else with.

So, on the question of when you should invest, the short and simple answer is always right now.

Preparing Your Finances for Investment

As nice as short and simple answers are, there’s always some complexity to consider. In this case, the two factors that prevent many people from investing today instead of tomorrow are debt and tight budgets. And since you’ll need at least some extra money to invest, this makes sense.

That means that in order to prepare your finances for investment, you’ll need to evaluate the overall health of your finances. Do you have expensive debt to pay off? Are you living paycheck to paycheck? Could a re-evaluation of your budget point to expenses that could be cut or reduced? If you can find any extra money in your budget – even if it’s only $25 – then you can allocate that money to investments. Since the biggest barrier is often in getting started, getting into this habit of investing every month will help you maintain it and increase your monthly investments as soon as you’re able.

If debt is a big consideration, then you might think that extra $25 should go to the debt payoff. While it’s true that any money put towards debt payoff can be considered an investment in your financial future (less debt equals more money in your pocket when those bills start going down and, eventually, away), that doesn’t mean you can’t put something towards investments.

Getting in the habit of investing (and capitalizing on compound interest) while also paying down debt is like triaging your finances. It can seem scary at first to split your efforts, but it’s an act of thinking in terms of growth. You don’t want to just eliminate debt, you want to grow your money. And those who focus on elimination of costly debt may not have the mindset of growing their money when that debt is gone. So why not practice having that mindset now? It’s not just about correcting what’s not working, it’s about building positive momentum at the same time.

Your finances are ready for investment as soon as you’re ready to make room for it. It’s that simple.

Making Room for Investments

The first step is to go through your spending plan with a fine-toothed comb. (If you don’t have a spending plan, then your first step is to develop that.) Then, find any extra money you can by cutting or reducing expenses. Some things may seem necessary now, but when you compare them to the idea of what you could earn through investment, they might drop down on the priority list.

If you need help with this, you could talk to a fee-only financial planner and ask him or her to go over your budget together. Adding an expert to the mix (and one whose focus is on helping you, not selling you products) may help you see openings in your spending plan that you couldn’t. Whenever we’re too close to a problem, an outside voice can be extremely helpful in solving it – especially one that’s looking out for your best interest.

If there’s truly no room in your spending plan, then seriously consider spending time finding ways to earn extra money. I know this is a tough ask if you’re working full-time, raising a family, and just trying to keep it all together. However, it can be done with a lot more flexibility than ever before.

Thanks to the internet and the growth of remote working, there are more opportunities than ever to earn money from your own home – or to earn money for things you already know how to do well. I’m not going to say start a blog or a writing career (like so many others say to do) because that’s not meant for everyone and it’s not as simple as it sounds. But look at your life and the things you’re already doing. How can you earn extra money doing that? For example, if you have a pet and love taking it to the park, you could advertise your services as a dog walker. Then you can take your pet and others to the park and get paid for that time that was already designated to the task.

This is just one example, but remember, any extra money you could earn (even if it seems like almost nothing) is money you could put towards investments and money that will grow with the help of compound interest. And the more you do this, the easier it will all get (the practice of dedicating money to investments, the practice of finding ways to earn money on the side, the practice of having a growth mindset). Every small step you take now will lead to a much larger path with a lot more opportunities in the future. So just take that first step.

Pay Yourself First

Finally, we need to address the importance of making sure that money you designated for investments actually gets there. This is where the pay yourself first mentality comes into play. You could set up automatic investments at the beginning of the month, you could split your paycheck deposit so a portion of it goes directly to savings (and then move that to investments), and more. The most important thing is that you don’t put it off until the end of the month – when it gets a little too easy to see extra money in the checking account and use it for something else.

Think about the phrase to “pay yourself first” – it’s not about restricting yourself from other things. It’s about making sure you get to apply your hard-earned money the way you intended to. It’s about protecting yourself from impulse and enabling you to stick to the plan that the future you is going to benefit greatly from.

Pay yourself first. Practice having a mindset set on growth. And start investing as soon as there’s room in your budget. The future you will look back and thank you.

Image Credit: Danist Soh

Author: Shannon

Shannon McNay is personal finance writer who loves to talk about the emotional side of personal finance. Her work has been published in Business Insider, DailyWorth, Huffington Post, Lifehacker, ReadyForZero, Yahoo! Finance, and more. You can follow her on Twitter @shannonmcnay.