We've all heard the stories.
A friend tells you about a stock that's doubled in value. A coworker has a tip about the next big investment opportunity. Someone on social media claims they've found a way to make a fortune.
It's easy to feel like you're missing out. Maybe you even start wondering whether you should be doing more with your own money.
I understand the temptation. But over the years, I've come to believe that building financial security has much less to do with finding the next great investment and much more to do with the everyday decisions we make with our money.
And before we talk about investing, there's something I believe is even more important.
A Strong Foundation Comes First
Think about building a house. You wouldn't start putting up the walls and roof without first making sure the foundation was solid.
I look at personal finances much the same way.
Investing can be a valuable way to build wealth over time and prepare for retirement. But if you're struggling with high-interest debt, have little money set aside for emergencies, or aren't sure where your paycheck goes each month, it makes sense to give those things some attention first.
After all, what happens when your car needs an expensive repair, the roof starts leaking, or you suddenly find yourself without a paycheck?
If most of your available money is tied up in investments, you could find yourself having to sell something at the worst possible time — perhaps when the market is down.
That's one reason investing is Building Block #8 in our 8 Building Blocks for Financial Stability. The earlier building blocks are there to help you prepare for life's financial challenges.
Here are a few things I believe are worth getting comfortable with before taking on substantial investment risk:
- Have a monthly budget that works for you. You don't have to account for every penny perfectly, but you should have a pretty good idea of what's coming in, what's going out, and what's left over. Our 10-10-80 Monthly Budget offers a simple way to get started.
- Build an Emergency Fund. Having roughly 3 to 9 months of essential living expenses set aside can provide some much-needed peace of mind. The right amount depends on your household and how secure your income is. This is money you want available when something unexpected happens, not money you want riding the ups and downs of the stock market.
- Plan for expenses you know are coming. Car repairs, insurance bills, holiday spending, home maintenance — they're part of life, even if we don't know exactly when they'll show up. Our Freedom Account was created to help people prepare for these irregular expenses instead of scrambling to pay for them when they arrive.
- Get serious about expensive debt. It's hard to get ahead when high-interest credit cards and other costly debts keep eating away at your income. Our Rapid Payoff Calculator can help you explore ways to pay down those balances faster and see how much interest you might save along the way.
None of this means your finances have to be perfect before you invest. They probably never will be. And if your employer offers matching retirement contributions, that's something worth looking into even while you're working on your other financial goals.
My point is simply this: Don't overlook the financial basics while chasing the possibility of bigger investment returns.
Those basics may not be exciting, but they can make a world of difference.
A Little More Breathing Room as Retirement Gets Closer
There's another consideration that's especially important as we get closer to retirement.
While an Emergency Fund helps protect us against unexpected expenses, retirement brings another challenge. Eventually, many of us will need to start drawing money from our savings and investments to help pay our living expenses.
And the stock market doesn't always cooperate with our plans.
Imagine retiring just as the market takes a significant downturn. If you have to sell investments every month to pay your bills, you may end up selling at prices you'd rather not accept.
That's why some people approaching retirement choose to keep a larger cushion of accessible, relatively stable savings.
One approach worth learning about is keeping enough money available to cover perhaps 12 to 24 months of the withdrawals you'd otherwise need from investments, after accounting for dependable income such as Social Security or pensions.
It's not a rule, and it won't be right for everyone. Keeping too much money in cash also has drawbacks, including losing purchasing power to inflation.
But I like the idea of giving yourself some breathing room. Having that extra cushion may help you avoid selling investments during a market downturn.
It's another reason I believe planning ahead matters.
Investing Doesn't Have to Be Complicated
If you're new to investing, all the terminology can feel a little intimidating. Stocks, bonds, mutual funds, retirement accounts — there's a lot to take in.
The good news is that you don't need to understand everything at once.
Here are a few basics worth knowing.
Saving and investing aren't quite the same thing.
Savings are generally for money you want to keep safe and readily available. Your Emergency Fund is a good example.
You might consider keeping savings in a high-yield savings account, where your money can earn interest while remaining accessible. Just be sure to compare rates, fees, and deposit insurance coverage.
Investing is different. You're putting money into something with the hope that it will grow over time, knowing its value can also go down.
You don't have to pick individual stocks.
When you buy a company's stock, you're buying a small piece of that company. If the company does well, your investment may benefit. If things go badly, you can lose money.
But individual stocks aren't your only choice.
Mutual funds and exchange-traded funds (ETFs) can give you exposure to many investments through a single fund. Some broadly diversified funds hold shares in hundreds or even thousands of companies.
That means you're not depending entirely on the success of one business. Of course, funds can lose value too, and not every fund is well diversified.
Bonds are another type of investment, generally involving lending money to a government or company in exchange for promised payments. They have risks of their own.
The important thing is understanding what you're buying and why.
Time can be one of your biggest advantages.
You've probably heard of compound growth. It's the idea that your money can earn returns, and those returns can potentially earn additional returns over time.
It's one of the reasons starting early and investing consistently can be helpful.
But investments don't grow in a straight line. Some years may be good, others disappointing. And fees can quietly reduce the amount you keep.
Patience, realistic expectations, and understanding the risks all matter.
What About Retirement and Investment Accounts?
This is another area where beginners sometimes get confused. There's a lot of terminology, but the basic ideas aren't too difficult.
A retirement or brokerage account is simply a place where you can hold investments. The account itself and the investments you choose inside it are two different things.
Here are a few you may hear about:
401(k) retirement plans: Many employers offer these plans to help employees save for retirement. Some employers will also match part of what you contribute. That's a valuable benefit — almost like receiving extra money from your employer toward your future. It's worth understanding how much they'll match and any conditions for keeping those contributions.
Traditional Individual Retirement Accounts (IRAs): These are personal retirement accounts that may provide tax benefits today, depending on your circumstances. Taxes generally come due when you make withdrawals.
Roth IRAs: With these accounts, contributions are generally made using money that's already been taxed. In return, qualified withdrawals in retirement can be tax-free. There are contribution and eligibility rules to understand.
Brokerage accounts: These are investment accounts outside traditional retirement arrangements. They typically offer more flexibility when accessing your money, although taxes may apply to investment income and profits.
You may also come across Roth 401(k) options through an employer. They combine features of workplace retirement plans with different tax treatment.
Each type of account has its own advantages, limitations, and rules. There isn't one that's automatically best for everyone.
And here's something worth remembering: Choosing where to keep your investments is one decision. Choosing what to invest in is another.
Take time to understand both.
Be Careful Who You Listen To — Including Me!
One thing I've learned over the years is that everyone seems to have an opinion about investing.
Friends, family members, coworkers, financial commentators, and now countless people on social media all have ideas about where you should put your money.
Some may genuinely know what they're talking about. Others may simply be repeating something they heard.
And sometimes, by the time everyone is excited about a particular investment, much of the opportunity they're talking about may have already passed.
There's an old Latin expression, caveat emptor, which means "buyer beware."
I think that's pretty good advice when it comes to investing.
Just because someone else made money on something doesn't mean you will. And just because an investment is popular doesn't mean it's a good fit for your circumstances.
Before putting your hard-earned money into anything, ask yourself a few common-sense questions.
Do I really understand what I'm buying? What could go wrong? How much could I lose? And am I making this decision because it fits my goals, or because I'm afraid of missing out?
If someone promises unusually high returns with little or no risk, be especially careful.
I've never believed that investing should be treated like a get-rich-quick opportunity. Trying to chase every hot stock or jump onto every passing bandwagon can lead to some expensive lessons.
Sometimes, doing nothing until you've learned more is a perfectly reasonable decision.
And that brings me to something important.
I'm not an investment expert, and I'm not here to tell you what to buy or sell.
I'm simply sharing some of the things I've come to believe through my own financial journey.
I encourage you to do your own homework, keep an open mind, and learn from people and organizations with the experience and credentials to help you.
A Few Good Places to Start Learning
There's no shortage of information about investing. The challenge is finding information you can trust.
Rather than trying to explain every investment choice here, I'd encourage you to spend some time with these educational resources:
- Investor.gov — Introduction to Investing — A good place to start. It's provided by the U.S. Securities and Exchange Commission and covers investing basics, common risks, retirement planning, and how to recognize potential fraud.
- Fidelity — Investing for Beginners — Helpful articles and videos about investment choices, retirement accounts, and getting started.
- Investopedia — Beginner's Guide to Key Investing Principles — Plain-language explanations of many investing terms and concepts you're likely to encounter.
You don't have to read everything in one sitting. Pick a topic that interests you, learn a little, and build from there.
These resources are offered for education, not as endorsements of any investment or financial service.
And if your situation is complicated or you're facing a major financial decision, there's nothing wrong with seeking help from a qualified financial professional.
One Final Thought
If there's one thing I hope you take away from this article, it's that preparing for your financial future isn't a race.
You don't have to keep up with your neighbor, chase whatever investment is making headlines, or feel embarrassed because you're starting later than you hoped.
We all have different circumstances, different responsibilities, and different financial goals.
What matters is making progress.
Maybe your next step is getting a monthly budget in place. Maybe it's building your Emergency Fund, paying off a stubborn credit card balance, or finally setting aside money for those irregular expenses that keep catching you off guard.
Or maybe you've already built a solid foundation and you're ready to spend more time learning about investing.
Wherever you are, start there.
That's what PlanAhead Money is all about — helping everyday people make thoughtful choices with their money, prepare for life's surprises, and work toward a more secure financial future.
If you haven't already, take a look at our 8 Building Blocks for Financial Stability and explore the financial planning tools and resources we've put together.
You don't have to figure everything out today.
Build your foundation. Keep learning. And when you're ready to invest, do it with purpose — not pressure.