What to know before you start investing

Before you jump into investing, get a clear understanding of where your money is going. Here are a few things to consider.

Build an emergency fund

The goal for an emergency fund is to save enough money to cover your expenses for six to nine months. With this in place, you are prepared in the event you lose a job or come face-to-face with unexpected costs from home or car repairs or medical emergencies.

Make building an emergency fund a priority. It's a smart way to ease stress or concerns over some of life's unknown events. This is like insurance for your budget.

Understand and manage your debt

Classifying your existing debts is a good start. Most people have unproductive and productive debts.

Unproductive debt is debt that doesn't add to your income. It's not for investment and it is typically used to purchase items that depreciate in value over time. It's best to keep unproductive debt low. Examples of unproductive debt include:

  • Televisions
  • Cars
  • Furniture
  • Other lifestyle items

Productive debt on the other hand, generates income. It works to help you build wealth by purchasing assets which typically appreciate in value and sometimes produce income that pays both the principle and interest on a loan. Examples of productive debt include:

  • Land
  • Rental properties
  • Gold
  • Fine art

Pay down high interest debt

If your money is going toward excessive credit card debt or private loans, make a plan to figure out how and when you might pay those down. In the meantime, make smart decisions about how to keep investment opportunities in balance.

You don't have to have a full emergency fund and be debt free before you start investing. It helps to know where your money is going and to have a well thought out plan for investing.

Take in the insights from the opening chapter to set you up for wise investing.

Your chapter 1 checklist

Video Transcript

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Securities distributed by State Farm VP Management Corp.

Securities, insurance and annuity products are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.

State Farm VP Management Corp. is a separate entity from those State Farm® and/or unaffiliated entities which provide banking and insurance products.

Neither State Farm nor its agents provide tax or legal advice.


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