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It’s a great idea to invest from a young age. Read on to see if you’re ready.
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Graduating college is a milestone worth celebrating. After all, you worked hard, studied hard, and now have a degree to help you build what will hopefully be a successful career. Now that you’re a college graduate, you may be eager to embrace the real world. That means getting a job, covering your own rent, and making your own financial decisions.
One of the first financial decisions you might make is to open a brokerage account and start assembling a portfolio of stocks and other assets. Doing so from a young age is important, because the more time you give your money to grow, the more wealth you might accumulate in your lifetime.
But as excited as you might be to open a brokerage account, you should first make sure you have ample funds on hand for emergency expenses. And if not, it’s best to hold off on investing until your emergency fund is complete.
Tackle your emergency fund first
The purpose of having an emergency fund is to make sure you have cash reserves to cover unplanned bills or to get through a period of unemployment. If you don’t have enough money in your savings account to do those things, you might be forced into debt when surprise bills pop up or your paycheck disappears for a period of time.
That’s why building your emergency fund should trump any other financial goal you have — and that includes investing. In fact, you should even hold off on funding an IRA for retirement savings purposes until you have a solid emergency fund. That’s how important it is.
How much money should your emergency fund have?
At a minimum, you should aim for an emergency fund that has enough money to cover three full months of essential bills. The logic is that if you were to lose your job, it might easily take three months to find another one. Plus, having three months’ worth of bills in the bank could leave you in a pretty good spot to tackle surprise bills, like a car repair you weren’t anticipating.
READ MORE: Emergency Fund Calculator
Now, many financial experts will tell you to save beyond three months’ worth of expenses for better protection against unemployment and surprise bills. If you’re fresh out of college with minimal expenses and you don’t have any dependents or people who count on you financially, then a three-month emergency fund may suffice. And from there, you can work your way up over time.
Sometimes, it pays to wait to invest
It’s definitely a good thing to give your money as much time to grow as possible. But it’s even more important to make sure your near-term needs are covered via a solid emergency fund. So until you get to that point, it’s best to wait on opening a brokerage account.
In fact, a recent SecureSave survey found that 67% of Americans don’t even have so much as $400 set aside for emergency expenses. You definitely don’t want to put yourself in the same position.
But once you have a fully loaded emergency fund, investing your money is a smart thing to do. It could set you up to meet your long-term goals and enjoy your share of financial freedom throughout your life.
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