10 Steps to Take Before Investing – Beginner Investment Tips

By in Automatic Saving, Budget, Debt, Investing | 25 comments

“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.” – Robert G. Allen

What to Do Before Investing in a Stock or Mutual Fund

Buying and selling stocks, bonds and mutual funds is a path to wealth, yet, there are steps to take before investing.

At the start of my investing career, I thought it was cool to research and invest in the stock and bond markets; until I had my first loss. When my first stock pick drops 50% in price, I wasn’t having fun! Fortunately, I learned from that loss and went on to invest successfully. Here you’ll find out what to do before investing in mutual funds and stocks so that you can be a successful investor.  

Investing isn’t a game, but a way to gain wealth. Over the past 100 years, the trend of the investment markets has been up, and investors who stay in the markets through the ups and downs, profit.

In 1928, $1,000 invested in the S&P 500, a measure of the U.S. stock market,  would be worth $328,645 at the end of 2016. That’s a compounded annual return of 9.53%, according to the statistics of  Dr. Aswath Damodaran of NYU Stern School of Business. 

First, there are factors to consider before investing. Without appropriate financial preparation, you might begin investing and be forced to sell your newly purchased mutual fund or exchange-traded fund at an inopportune time. So, before investing in mutual funds or stocks, get your money house in order.before investing take these steps

10 Steps to Take Before Investing for Your Future

1. Open a bank checking account-You need this account for your monthly expenses. Internet or bricks-and-mortar banks are fine.

2. Open a bank savings account-This is where you keep all of your short term savings. Build your emergency fund in the savings account. Internet or bricks-and-mortar banks are okay.

3. Write down your income and expenses for a month-I know this is inconvenient, but you must do this to be in control of your cash. There is no way out! Start with a small notebook, app, or day calendar. To help get started and avoid procrastination, pledge to track your money for just one day. After the first day, continue; one day at a time. As a reformed procrastinator, I can vouch for the strategy of “baby steps”. That is, start small and take this task one day at a time.

4. Make a budget or spending plan-This one is difficult too, but do it anyway. Find a budget that works for you. Once you find out where your money is going, you can decide if you are getting enough pleasure from your spending. If you’re spending on snacks at work every day, bring from home and you can save thousands to move into your investment account. 

5. Follow the spending plan-Do the best you can, you don’t need to be perfect. Adjust along the way. When you go out for drinks, you might decide a beer is as much fun as a martini, and less than half the cost. Understand that gaining financial control is an important part of lifetime wealth building. And you can’t start investing if you don’t have your financial house in order first.

Learn to turn your daily latte money into thousands of dollars in “How to Get Rich: Without Winning the Lottery”.

6. Pay off all credit card debt-You cannot move forward financially with credit card debt. Find a way, there are many resources available to help. But the simplest plan is to list all your debt so you know how much you owe. Choose one debt to get rid of first and pay at least triple the minimum (or more if possible) on that account. Pay at least the minimum on the remaining debts. 

7. Auto-transfer a specific amount regularly into the savings account-Don’t worry about the amount in the beginning. Just develop the saving habit. The easiest way is to complete a transfer form (from paycheck to bank) at your work human resources office. 

8. Save enough in the savings account to equal 6-8 months living expenses– Allocate this savings for unexpected emergencies and replenish after using. I keep our family “emergency” fund in both government I-bonds as well as in a savings account. After a big withdrawal (did I mention we had a car accident last year?), prioritize getting cash back in to replace the money you took out. 

9. Buy inexpensive term life insurance if you have someone (spouse, kids, parents) depending on your incomeTerm insurance doesn’t cost much and if you die, your family doesn’t end up in the poor house. If you don’t have dependents – you’re single, both partners work and don’t have kids, or your kids are grown –  then you may not need life insurance. Stay away from the fancy versions of life insurance. 

10. When you begin to invest in the stock and bond markets, do so with money you won’t need for five years or more. Because the financial markets are volatile you don’t want to invest $10,000 that you need for a down payment on a car in two years, only to find that in two years, the $10,000 you started out with has dropped in value to $8,000.

Check out M1 Finance for a DIY and digital investing approach >>>

Remember to enjoy life! Wealth in life includes living day-by-day.

 *Caveat: If your employer matches your contribution to a retirement plan, then contribute enough to get the employer match. If you don’t contribute, you are throwing away free money.

Action Steps:

1. Choose one wealth building step to take daily.

2. Before investing, read about investing in mutual funds for beginners.

3. When you’re ready to invest, make sure to pick up the free eBook and our other free giveaways.

This article was revised and updated on May 5, 2017. Originally published in April 2010, this was one of the first articles on Barbara Friedberg Personal Finance.com. The advice is timeless and holds true today.


  1. I agree almost entirely with this post Barb. The only thing I would change is I would suggest immediately contributing to a 401k plan with that very first check out of college. (Even if there is not an employer match.) I agree that emergency funds are important and such, but I am a firm believer in paying yourself first, and getting used to not having that money from the very start. Not to mention the tax protection you get for the money you put into your 401k.

    Everyday Tips

    October 12, 2010

  2. @Everyday,You caught me here! 🙂 I completely agree with you about immediately contributing to a work retirement plan. You made this important point so clearly I really have nothing to add. Thanks for keeping me honest.


    October 13, 2010

  3. Great step, although I don’t think I have a savings account. And I don’t have a real emergency fund now either (at one time I did though, but I kind of outgrew it…) I still have plenty of near-cash invested, liquid resources available should an emergency arise!

    I agree with Kris, I started my 401k early in my working career and haven’t regretted doing that in the slightest! 🙂

    Great list though, expecially the term life insurance! I just recently increased mine (it was way too low of coverage).

    Money Reasons

    October 13, 2010

    • @Money Reasons-Thanks for shedding light on a really important topic: liquid assets. You beautifully illustrated that there is more than ONE way to reach one’s goals. The idea of this post is to approximate what one should attend to before investing, not to DICTATE. As long as there is access to some cash in case of disaster, that’s the important point! Thank you!


      October 14, 2010

  4. Another post that I wish I read 14 years ago! I did none of these things before thinking about investing, and my finances crumbled because I didn’t have a solid foundation!

    I’m also in favor of immediately contributing to a 401k. It is so easy to save money that never reaches your hands. Just learn to live off of the balance.

    Khaleef @ KNS Financial

    October 14, 2010

  5. Khaleef, Saving first and automatically is an almost FOOL PROOF method of generating wealth. I am amazed when I look at the balances of retirement accounts from prior jobs. Time in the market is a great way to get wealthy.


    October 14, 2010

  6. Nice Checklist Barb. Something I wished my mush brain would of read 30 years ago. Trying to get my kids on the right track at the moment. I like the pay off your credit cards and then pay yourself parts.


    October 15, 2010

  7. Dave, Sorry I didn’t write it 30 years ago! I was much less savy back then 🙂 Let me know when you learn the secret to teaching your kids wise money smarts!


    October 15, 2010

  8. Wow making money at home has sometimes really been really hard; almost always I purchase some ebooks and get money from those. although they get extremely expensive! Trying to make money without any sort of job experience is even harder. Some programs is so terrible, however this post really taught me a lot. Great Information! 🙂

    Matthew Rein

    October 29, 2010

  9. Great article! We, at centsables.com, applaud you for directing this advice to both adults and children! The best time for financial education is to start early!

    We are passionate about spreading the word!


    August 2, 2014

  10. Great point about the money you are investing should be there for at least 5 years. Too many people treat the stock market as a get rich quick plan and when that doesn’t happen, they complain that it is rigged against them. It’s not. If you take a long term approach and stay invested, you will make money in the stock market.

    Jon @ Money Smart Guides

    August 4, 2014

  11. @Theresa, Thanks for stopping by and good luck promoting financial literacy.

    @Jon, Actually, I think 5 years is the minimum amount of time one should keep their investments in the stock market. If you’ll need the money sooner, then it’s a good idea to keep the funds in a cd, government I bond, savings or money market account.

    Barbara Friedberg

    August 4, 2014

  12. Thanks for this informative post Barbara. I’m also planning to invest my money in stocks. One of my friends told me about Systematic Investment Plan that he says is the safest stock investing scheme. Can you please guide me on that?

    Alissa @ FinanceWand

    August 5, 2014

    • Hi Alissa, It sounds like your friend is talking about a dollar cost averaging strategy. Please take a few hours to educate yourself on investing before you begin.

      Following are a few resources. Also check out How to Invest on the front page of the site.

      Check out: (free) How to Invest and Outperform Most Active Mutual Fund Managers http://forms.aweber.com/form/87/2066025387.htm


      The Elements of Investing, by Malkiel and Ellis (100 pages) http://amzn.to/1ochDdi.

      Barbara Friedberg

      August 5, 2014

    • Thanks Nick. Step by step, and investing is easy.

      Barbara Friedberg

      August 5, 2014

  13. These are great step by step instructions. We are working on paying off all of our credit card debt before we start investing.


    August 8, 2014

  14. Michelle, Good luck to you. It’s a good plan to get rid of the credit card debt as quickly as possible.

    Barbara Friedberg

    August 9, 2014

  15. Barbara,

    Well, my wife and I have been debt free for two and half years now!(We paid off 125,000 in in 2.5 years) Since then we have an emergency fund in place, we invest approximately 30% of our income in retirement accounts; (15% of my annual gross income and 15% of her annual gross income). In addition, we are putting aside money for our kid’s college education. We have found that living on a cash budget and not using credit cards and using the same principles we used to get out of date to save and invest, has paid us ten fold in the last four years.


    August 19, 2014

    • I love your story. Do you believe that once you get used to living on less, there’s a certain satisfaction to that type of lifestyle?
      Personally, starting down the barrel of retirement makes my spouse and I so happy that we lived conservatively and directed our earnings towards investing and saving over the years.

      Barbara Friedberg

      August 20, 2014

      • Absolutely, and we feel a sense of security because we know we have extra each month that we are not spending. The lifestyle is still enjoyable and comfortable. Also we have watched our wealth build because of it!


        August 20, 2014

        • HI Socrates, I can attest to the fact that after years of living conservatively you have many more freedom and choices. Also, maintaining a cash cushion keeps the financial setbacks from sinking your boat.

          Barbara Friedberg

          August 21, 2014

  16. These steps provide a great insight into managing one’s finances! I had never been a spendthrift but learned to save money ever since I attained teen age. So, I never really found myself in debt. But I firmly believe that a careful assessment of your financial situation is necessary prior to considering investment options. Besides acquiring knowledge on the market conditions, you must also acquire some knowledge on the way the stock behaves over time.


    May 10, 2017

  17. Hi SM, Agreed! It’s so important for people to understand that investing is only for long-term money. And, that you shouldn’t dive into financial markets without first developing a sound financial footing. Otherwise, you might be forced to sell your stock or bond funds, to pay for an unexpected emergency, at a time when the market is down.

    Barbara Friedberg

    May 11, 2017

  18. Dear maadam. Thanks so much for response me or remember me Sebastian mahimbo. Thanks for good email sent me. But my friends my petition from me is capital or fund enough for evestment of Real state. Thanks.

    Sebastian mahimbo

    January 24, 2018


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