I recently read an article called “Ten Things You Need to Do Before You Start Investing” on The Simple Dollar.

In general, I think the author made some good points. He recognizes that not everyone is in a position to immediately throw a bunch of money into the financial markets and have that turn out well. He brings up the mindset that you need to have and a few things to put in place before starting to invest.

Here are his 10 points:

1. Your Net Worth Needs to Become the Primary Personal Finance Number You Care About
2. You Need to Pay Off All of Your Credit Cards and Other High-Interest Debts
3. You Need to Eliminate Most of Your Worst Personal Spending Habits
4. You Need to Establish a Cash Emergency Fund
5. You Need to Figure Out What Your Big Life Goals Are
6. You Need Your Spouse to Be on Board with Your Plans
7. You Need a Healthy Understanding of Your Investment Options
8. You Need to Have a Bank That Handles Online Banking and Automatic Transfers with Ease
9. You Need a Social Circle That’s More Supportive of Smart Financial Moves Than Excessive Spending
10. You Need a Healthy Relationship with Your Wants and Desires

Most of these are good ideas, but I would make some tweaks.

He says under point 5 (figure out your big life goals):

One of the key principles of investing is to never invest without a purpose. There are many reasons for that, but the big one is that without a specific purpose in mind, you can’t really assess your timeframe for investing and how much risk you’re willing to take on, both of which are vital questions when it comes to investing.

He is right that when you want the money for a goal (financial types call this the “time horizon” for an investment), it makes a difference in what you invest in. But be wary of trying to “figure it all out” before you begin. Take a little time to educate yourself first, but don’t wait until you master it to begin or you will never get started.

While it may take a little time to think through some of your other goals, you probably do not want to have to work until the day you die. Or at least, you probably do not want to have to work for pay for your entire life. That means one of your large goals is retirement. Set that as your first goal, start saving and investing toward that goal, and then take time to dream about your other life goals.

Under point 7 (have a healthy understanding of your options) he says,

My personal recommendation for a really good all-in-one investment book is The Bogleheads’ Guide to Investing by Larimore, Lindauer, and LeBoeuf. It is a spectacular one-volume book on investing in how it connects real-life concerns and goals to investment options and explains how different options work and meet those various concerns and goals.

We also suggest this book as a great starting place for self-education on investing. I would also add the book The Behavior Gap, by Carl Richards. It’s a pretty easy read, with napkin-and-sharpie drawings to illustrate his points. Richards talks about the ways it is hard to wrap our brains around solid long-term investing or the behavior gap between what we know about investing in the markets and how we feel about investing in the markets. Knowledge and emotion can play off each other in ways that cause investing mistakes.

With a little preparation, however, you can save and invest over your lifetime to meet your financial goals and dreams.

Photo used under Flickr Creative Commons license.