Having the safety net of savings makes financial sense no matter what your current situation. It’s important to save money in an emergency fund. Investing is different from saving or trading. Investing involves committing money in order to earn a financial return. So how do you know if you have enough money saved to consider investing?
A suggested “mental checklist” before investing to make sure your finances are stable include answering YES to the following three questions before considering investing:
- Do you have an adequate emergency fund of 6 months of expenses?
- Are you committed to leaving the money in place for 2-5 years or longer?
- Can you weather the ups and downs of the market?
If ALL answers to the above three questions are “yes”, then the next main question is to ask yourself what kind of risk you can afford to take with the money you are putting into an investment. If you answered “no” to ANY of the above, then focus on saving.
“An investment in knowledge pays the best interest.” Benjamin Franklin