Are you a millennial and you want to start investing? Currently, only one in three millennials invest in the stock market. This is a concerning statistic especially considering the fact that millennials have faced some of the most uncertain economic times since those who lived through the Great Depression.

A 20-year trend of decreasing labor market mobility has led to stagnant wages that millennials are struggling to recuperate even now well into their 30s and 40s. Added on top of that is the fact that the income and net worth gap between America’s 1% and the middle class is the biggest it’s been since 1941.

And, finally, it’s no secret that we definitely weren’t taught how to build wealth in school (but, to be fair, neither were previous generations). That’s what we’re here to do at Wealth Stack. We believe that everybody deserves access to free financial education. And, we’re here to help millennials like you learn how to invest in yourself and your financial future. 

But, let’s not get ahead of ourselves. Here are five things we suggest doing before you start investing.

Ready to start investing right now? Download the Wealth Stack app to get started.

What to Do Before You Start Investing

1. Pay Off Debt

We’ll actually start this one off by suggesting that you don’t rack up high-interest debt in the first place. But, we totally understand that it’s unavoidable sometimes. If you have high-interest debt, we suggest that you pay this off before you start investing. Note that we said high-interest debt, because other debt such as mortgage debt or student loan debt is somewhat normal and inevitable in today’s world (especially for millennials).

High-interest debt can easily get out of hand and is one of the easiest ways for you to waste money. And, it can be pretty pointless to be investing in stocks and other assets when you’ve got debt that’s going to outpace the growth of those investments. Here’s a good example of that kind of wasteful debt:

Let’s say you spend $3,500 on new furnishing for your apartment or home. Great! We’re sure it looks Insta cute and cozy. Now, the current average credit card interest rate is 16.22% and we can assume you’ll make a minimum payment of $150 a month. At that rate, it’ll take you 29 months to pay off that balance. And, in the end you’ll have paid a total of $733 in interest.

What else could you do with $733? And, how else could you grow your money over those 29 months of your precious life? This is why it’s so important to focus your efforts on paying off high-interest debts first. Or, alternatively, learn how not to rely on credit cards and other high-interest options as a way to finance your life (more on that in our courses within our app, which you can download here!).

2. Build Your Emergency Savings Fund

Assuming you don’t have any massive high-interest debts anymore, we suggest also building an emergency fund before you invest. Why? Well, things happen. Life happens! And, while we believe in the power of investing to help you build long-term wealth, we also know that it’s important to have something to fall back on when emergencies arise.

We suggest working towards saving anywhere between three to six months of living expenses. This is the standard size of most emergency funds, and it obviously depends on your specific financial and living situation. If you live in New York City and live a lifestyle that requires more funds, your emergency fund will obviously need to be bigger than someone who lives in rural Texas.

Ultimately, an emergency fund is designed to help you alleviate stress while you focus on building your wealth long-term. So, figure out what that number is for you. If you feel more comfortable with nine months of living expenses saved up then aim for that. 

3. Learn About Compound Interest

Now that you’ve got your finances in order, it’s time to learn about the importance of compound interest. Understanding how it works will not only benefit you with your future investing endeavors, but it’ll certainly light a fire inside of you to start investing now.

Here’s a real-life example. We’ll base this example on the average compound rate of the SPY ETF, which is 16%. Just to be on the safe side, let’s lower that to 12%. Now, let’s say you’re a 25 year-old looking to retire at 50. You’ve paid off all your debts and have $10,000 to invest right now.

The equation we’ll use here is:

$10,000 x [1.12^25]

The 25 at the end of the equation represents the amount of years your investment would be compounding annually for (because you’re 25, you have 25 years left until you’re 50!). Following this equation, you would have a total of just over $170,000 after 25 years. And, that’s assuming that you didn’t invest anything else into that same account and just left it there for 25 years.

However, the effects of compounding interest don’t stop there!  Let’s do the math of what you’d have by the time you reach the age of 60. After 35 years of just leaving that cash there, you’d have just under $528,000. Leave it in for another 5 years until you’re 65 and you’ve had just over $930,500.

That’s the effect of compounding, folks. And, it’s also why it’s so important to start investing as early as you can.

4. Set Realistic Goals

Now, while we’d all like to be millionaires immediately, it’s important to set realistic goals when starting out as a beginner investor. And, by realistic we definitely don’t mean “small.” But, it helps if your goals have somewhat of a base or meaning to them.

Some examples of this might be:

• I’d like to buy a home within the next 5 years.
• I’d like to invest so that I can earn money to pay off $30,000 in student loans.
• I’d like to invest in my childrens’ future education.
• I’d like to save $20,000 for our wedding fund.

Assigning a specific meaning to your financial goals can often help them be more manageable. Because, after all, how do you quantify how close you are to a goal that is “I’d like to become rich.” That’s pretty subjective.

And, as always, keep in mind that investing isn’t really about those short-term gains. It’s not about earning $10,000 to spend on furniture for your new house. It’s more about learning how to really leverage the impacts of compound interest so that you can build long-term, sustainable wealth.

5. Learn the Basics of Investing as a Beginner

Now that you’ve covered the basics and have built a solid financial foundation, it’s finally time to learn how to invest as a beginner! This starts with learning the terminology, different types of assets, and even the art of investing.

Lucky for you, we’ve designed free video courses that will teach you just that. Whether you’re a total newbie or have some experience in the world of investing, you can start wherever you like and skip around to the videos that are the most helpful to you.

Once you’ve learned all you can, interact with the professional speakers on our platform. We’ve hand-selected some of the brightest and best in the world of finance to work and interact with you on Wealth Stack.

We believe in you and your ability to create wealth for yourself. We’re just here to help you get started. Download the Wealth Stack app for free to start learning how to invest.