October 16, 2021
 min read

Before You Invest

Before you start reading this awesome article, I want to congratulate you on taking the first steps towards investing and learning how to save for retirement.

A word from Chris Haven *Alan Edwards*

Before you start reading this awesome article, I want to congratulate you on taking the first steps towards investing and learning how to save for retirement. While it seems simple for most, 64% of Americans are not prepared for retirement and about half of us do not even care! This can and will put a huge strain on our children and grandchildren due to us not saving and planning. So for this, I want to say thank you for taking this step, now let’s get on to the basics!

Before Investing

Before we can call ourselves investors, let’s make a checklist on if we are ready to invest. Obviously, some career paths and jobs provide better opportunities than others, and we are all in different places financially. This is important because if you are struggling to get by right now and have a lot of debt, investing your hard earned money may not be the best idea at the time, due to some factors that this article may not know about, or be beyond control. This is what is recommended before you start to invest

Find out your Debt to Income Ratio (DTI)

This is important, understanding your debt first can help you come up with an action plan before investing. This can be done very easily in Excel or even on a piece of paper. Your gross monthly income is the amount your employer pays you before taxes and other costs are deducted. Include all documented sources of income when adding up your gross pay amount. To get a mortgage, your DTI has to be under 45%. Now, if you are not trying to buy a house or already own one, that is great! This part is to help people know their level, obviously you do not want to have all your income going towards debt. Aiming to be below half is a good balance.

If you’re paid weekly, multiply your weekly gross income by 52, then divide it by 12. If you’re paid every two weeks, multiply your gross pay by 26, then divide it by 12. Write down your gross monthly income amount(s). Once you have this, let’s look at some debt to clear.

*Taken from http://www.homebuyinginstitute.com/news/debt-to-income-ratio-update-511/The 50-30-20 Rule

The 50-30-20 rule is simply explained in the picture below. Try to have a max of 50% of your monthly income in expenses; 30% in wants (we have to live and not be machines, right,) and 20% in savings. While this is not going to be exact each month based on life itself, it is a good rule to live off.

*Taken from https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922Clear out of debt or set aside funds to clear out debt

Debt, ugh…, the bane of existence right? When looking at if you can invest, take a look at your finances first. Do you have credit cards? If so, how much do you pay a month? Just so you know, the average credit card debt of U.S. families is $6,270 in 2021. While this may not be ground shaking, the interest can pile up, especially with credit cards and store line credits. Look at your credit card balances and see if you can notice your APR, 25 percent is average. If you are paying credit card debt, this should be eliminated first and foremost before investing. Now, this is a perfect world scenario, it is OKAY to have debt and that debt is okay even on your credit cards. Think of it this way, would I rather pay off my debts first and minimize stress, than risk making money to pay off that credit card and have late payments and become more stressed? Another piece of advice I always say, pay off more than just the minimum; this goes for ALL loans (mortgage, cars, credit cards, etc.)

Car Loans

Like I said before, having debt is okay! I will talk about income creep in a little so hang tight. But, for car loans, try to live within your means. When looking at debt and other loans try to use the mortgage loan standard of 45% and the 50-30-20 rule of monthly money spending when determining your budget. What I have seen with people is extending their car payments to 6 years or more. The industry standard “use” to be 5 years, now they are pushing for 6 years. Do the math on the interest of one year, and the banks/dealerships are making money off you from their “new” standard.

Emergency fund of at least 2-3 months (8 months recommended)

I can’t stress this enough, life happens and we may be laid off, have financial difficulty, or other factors that can impact our finances. I would recommend having at least 2-3 months of your income saved in a savings or money market account to have that cash immediately. Most investment advisors will recommend 8 months, but after COVID-19 in 2020, things are tough for many so 2-3 months is a good start point.

Beware of Income Creep

You get a raise, promotion, or a high paying job! Woohoo! Now what? Buy that fancy car, or take your significant other and family on a vacation and that lobster dinner? This is great, however, many people become comfortable and see a rising bank account and psychologically think they are ahead and can afford more extravagant things. Try to not splurge on every little thing, an increase in standard of living is fine, just think what may happen if you change your position, get transferred, or worse, lose your job. Try to keep it constant and be happy.

Max out 401k (if possible)

THIS IS IMPORTANT because so many people think that they will just put in a little contribution on their employer matched retirement account. Maxing this is out as this is free money at its best. The industry normal is 4% matching of your salary. So if you make $40,000 and you contribute 4% and the company 4%, that’s 8%compounded monthly depending on the market, perhaps dividends depending on the fund.

Opening a brokerage account

The first step with investing is to open a brokerage account. There are many different brokers out there that offer similar services, some have incentives and others don’t. There is no solid pick on the brokers but here are a couple to list to get an idea.


When I mean traditional, these firms have been around for awhile and have (what I would say) solid customer support in the event anything happens during a trade or with their systems.

TD Ameritrade


Charles Schwab



App Friendly

I call these brokers app friendly as they were built for a mobile platform. These broker accounts may not have all the features of a traditional broker. For example, Robinhood does not have a phone line to call in the event of the app shutting down or market order issues. I can’t recommend which broker to use, but be cautious.




Robert LaMacchia is a content writer for PersonaFi. He is interested in a wide range of topics from personal finance, business strategy and international technology. Follow Robert on the PersonaFi app at @rlamacchia.

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