5 Signs You Might Be Ready to Invest (and 3 Signs You’re Not)

Investing can show up in various forms across your financial roadmap. You might invest for retirement in a 401(k) or IRA, or put money toward your child’s future plans in a Uniform Gifts to Minors Act (UGMA) account. The longer you have to let your money grow in the market (and learn along the way), the more opportunities you may have to gain returns from your investments. Still, the timing of when to start investing is personal.

There’s no official age or bank account balance that marks you as “ready” to start investing. But certain signs can be helpful indicators that you could be in a good position to invest—or better off waiting until you handle other important financial issues first.

5 Signs You’re Ready to Start Investing

Every family’s financial situation is different, of course. There’s no single factor that officially marks you as ready (or not) to invest. As you review your finances, these signs can be positive indicators that you might be in a good position to start your investment habits.

1. Your savings are strong

Planning financially for the future takes several forms. Investing can help you take advantage of greater potential growth for your money. Saving can provide a critical element of security, especially since you can’t always plan for every expense. Your emergency savings can be your strongest line of defense against unexpected bills, repairs, medical emergencies or changes in employment.

Discuss with your partner or a financial professional to determine what feels right as a minimum savings amount and your “fully funded” savings target. Many financial advisors recommend six months’ worth of household expenses as a rule of thumb. You might decide to hit that goal before you start investing, or make a plan to balance investing with saving.

2. You’re building up more money than you need

If you’re paying your bills on time and have a savings habit in place (ideally an automated transfer) and your bank account balance is still trending upward, that’s a great sign you’ve got cash to spare!

One temptation might be to use your extra cash for a fun splurge. We’re fans of treating ourselves and our families as long as our “splurges” fit responsibly in our larger financial picture—but if you’re consistently saving more than you need, you might consider dedicating a portion of those extra funds toward investing for the future.

3. You have at least some comfort with risk

Investing can be a helpful way to grow your wealth because it offers higher potential gains than bank account interest. The stock market overall has historically outpaced inflation. That said, even a low-risk investment strategy comes with the possibility of losing your money.

You may feel more confident about investing once you define your timeline and risk tolerance. If you’re not planning on using your investment money until you retire in 30 years, you may have more tolerance for market fluctuations than someone who plans to use their money sooner. (How soon is too soon? Generally, if you expect to need the money in two to three years, you shouldn’t put it in the market, and a more conservative estimate says only invest if you’ve got at least 5 years before you need it.) You can adjust your investments over time to fit your changing needs and risk tolerance.

4. You have some time and energy to learn about investing

You don’t need to be glued to stock reports or follow intricate details about individual company valuations. Plenty of people are able to benefit from investments without making it a hobby.

While you don’t need to earn a financial degree or spend hours listening to stock experts every day, you’ll get more satisfaction and may avoid some common mistakes by learning at least a tiny amount. That could be as simple as brushing up on what “aggressive” or “conservative” means, and when you might want to shift from one option to another.

5. You have an investment goal in mind

It’s easier to craft a roadmap if you know where you’re going. Maybe you want to plan for something long term like retirement or your toddler’s college tuition, or maybe there’s a short- term goal you’d like to reach, like a vacation or buying a home within the next decade. Whatever milestone makes sense to you, let it guide your investing strategy (for example, you might invest in riskier assets that have the potential to grow—but also more downside—if you have more time to make back any losses). By setting a clear goal, you can also make sure to celebrate it once you reach it. Toast to your success, and then you’re onto your next goal.

3 Signs You’re Not Ready to Invest Yet

Investing can be a beneficial part of many families’ financial roadmaps. But it’s not for everyone. If you notice these warning flags, you might be better off pausing to consider the best path forward before jumping in.

1. Your financial priorities aren’t clear

If your finances are a muddle, your first step might be straightening out the basics before you add more to your plate. Do you have a household budget in place to keep track of your money, or at least a sense of your spending vs. saving on a monthly basis? Do you have a plan to manage any debts you owe, alongside your saving and investing goals? If you’re feeling like you're drowning in your existing financial situation, you might want to gain your footing before taking the next step.

2. Money is a major source of conflict at home

Finances play a critical part in keeping your home running smoothly. Money is a common source of arguments between partners, and money disagreements can be less about a specific dollar amount than mismatched priorities.

If you and your partner can’t see eye-to-eye about investing, it might be smart to step back and look over your finances as a team. You’re more likely to make progress on your financial goals if you and your partner can work together instead of being in opposition.

3. You have a history of risky financial behavior

Investments carry an element of risk, which isn’t necessarily a bad thing. Taking a chance can lead to greater rewards, and you can choose lower-risk investments to help mitigate your overall risk profile. But it’s also important to take these risks seriously and choose a responsible course for your investments.

Warning signs to look for in your financial history include carrying large amounts of high-interest debt or having a history of excessive gambling. Being overly comfortable with financial risk might lead you to chasing the market (i.e., following trends rather than sticking to a balanced strategy) or even putting more money at stake than you can comfortably afford.

If you’ve had issues with compulsive spending or gambling in the past, find support for the mental health aspect of this financial behavior. It may be wise to be open up with a qualified financial professional about your history and get professional guidance on how to consider investing while managing your relationship with financial risk.

As you develop financial skills and set priorities, you can tailor your investment approach to fit your budget, personality and unique needs.

Fabric exists to help young families master their money. Our articles abide by strict editorial standards. This article has been reviewed and approved by a compliance professional who is a licensed life insurance agent.

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