Financial Basis: 5 Things You Need Before You Start Investing


Are you considering investing for the first time? You may be tempted to rebalance your 401 (k) or Thrift Savings Plan but uncertain with the results of debates over debt ceiling or tax law.

Spontaneity is great for parties and getaways, but it’s not necessarily the best for your financial security. Recognizing that life tends to have surprises in store, it helps to have a plan. In the words of Denis Waitley, “Expect the best, plan for the worst and prepare to be surprised. Here are five steps to building a solid financial foundation before you start investing.

1. Start at the end, then go back: set and align your goals

The risk of acting without a purpose is that you find yourself in a place that you would rather not be. Remember the Cheshire Cat’s advice to Alice:

Alice: “Could you tell me, please, in which direction I should go from here?”

Cheshire Cat: “It really depends on where you want to go. “

Alice: “I don’t care where. ”

Cheshire Cat: “So it doesn’t matter which way you go. “

Good planning is based on goals. What are your goals? Why do you do that? They can be short term (paying off debt, buying a car or a house, planning a wedding, etc.) or long term (college education for the kids, your retirement, etc.). Define and align your goals with those of your significant other. Once you know “what and why” the rest is easier.

2. Know the flow: cash flow and budgeting

Remember the wisdom of “spend less than what you earn”? Now add to that: “Know where your money is going.” Knowing your cash flow, both where it’s coming from and where it’s going, is essential.

Two things in common for the most financially successful people I have met over the years are: 1) they know what it takes to maintain their standard of living – some know where their wages are going and others know that they need $ X a month and live within that budget; 2) they are serial savers. One of my favorite sayings from my clients is “we know how to save… not pennies but hundreds”.

There are a number of personal finance apps that help with budgeting, including Personal Capital, YNAB (You Need A Budget), Mint, and others. Find the one that works best for you and your needs.

3. Cash reserves

Have enough emergency reserve to get you through life’s surprises. These surprises can range from a layoff to an unexpected car repair or even prolonged illness. A good rule of thumb is to have enough to cover at least three months of living expenses. Keep it in an FDIC insured account that pays a competitive interest rate.

4. Protect yourself (and your family)

Life tends to be on end. Therefore, it pays to protect yourself (and your family) and have contingency plans. Protection includes a wide range of strategies:

  • Develop skills to be marketable.
  • Diversify so as not to keep all your eggs in one basket and avoid significant monetary losses.
  • Build a support system, be it social, professional, or both.
  • Purchase insurance to protect you and your family against a catastrophic event (medical, disability, death, fire or civil liability).
  • Create legal agreements (estate plans, buy / sell and business continuation, etc.)

5. Review the plan: refine or restart if necessary

A road map is essential for a successful road trip. It helps you set your course by giving you explicit directions, tells you where you are at, and makes adjustments along the way if you need a detour. Review your plan during important life transitions, or at least once a year, with your trusted financial advisor.

May this wise advice help you secure your future wisely and invest successfully.

Brian Loy, CFA, CFP, is President of Sage Financial Advisors Inc. of Reno. Contact him at


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