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There’s always something to worry about in the investment world, and 2024 is shaping up to be no different. Geopolitical instability, the U.S. presidential election and talk of a potential recession are just a few of the variables that may send the markets on wild gyrations.
Still, according to famed financial personality Dave Ramsey, the time to get your finances in order and begin investing is always “now.” As Ramsey puts it, “The best way to get rich quick is to get rich slow,” meaning the earlier you start, the better. Here are Ramsey’s tips for how to get started investing in 2024.
Set Yourself Up for Success First
Ramsey is well-known for his “baby steps,” which is a sequence of seven principles designed to get people out of debt and on the path to financial freedom. In terms of investing in 2024, Ramsey first recommends that you get through his first three baby steps. Specifically, you should:
- Save $1,000 in a “starter” emergency fund
- Get out of debt
- Keep at your emergency fund until it has three to six months of income
Once you’ve completed these steps, you’ll have a sizable emergency fund and be completely out of debt. At that point, according to Ramsey, you’ll be ready to start investing.
Define What You Want
Investing means different things to different people. Before you can reach an investment goal, you’ll have to define what you want. Having a goal not only helps direct where your investments are going, it also can serve to motivate you since you are investing with a purpose.
For example, are you looking to fund the retirement of your dreams? Do you want to invest enough to put your kids or grandkids through college? Are you hoping to save enough to put a down payment on a house? All of these require specific planning, so it’s important to know what you want.
Decide Your Investment Amount
The glib answer to “how much you should save” is “as much as you can.” Different advisors have different suggestions, but most recommend trying to set aside 10-20% of your income for savings and investments.
Ramsey himself advocates for at least 15%. Once you’re out of debt and have an emergency fund, Ramsey suggests that it should be easy to set aside that much. And once you begin living off 85% of your income, you might not even miss the 15% that’s going to your investments.
Search for the Right Investment Account, Depending on Your Goals
There are many different types of investment accounts. The accounts you choose should be the ones that match your investment goals.
For example, if you’re looking to retire in 30 years and are trying to build a nest egg, a tax-advantaged account like a 401(k) or an IRA is a good idea. If you’re just looking to stash cash for your next vacation, you’ll want something more liquid, like a high-yield savings account. If you’re a business owner, something like a SIMPLE or SEP IRA might be the best option.
Choose a Strategy
Just like you’ll want to pick the right account for your financial goals, you’ll want to pick the right type of investments also. If you’re trying to maximize your retirement nest egg, for example, a savings account isn’t your best option, even with interest rates higher than they have been in years.
While you’ll have to take on some extra risk, growth investments — like stocks — are one of the traditional recommendations for long-term returns. Ramsey says you can diversify away some of that risk by selecting mutual funds rather than individual stocks. According to Ramsey’s research on millionaires, not a single one indicated that individual stocks were in their top-three wealth-building tools.
Open an Account
Once you have your objectives and strategy all in line, then it’s finally time to actually open an account. Ramsey recommends you start with any workplace retirement plan offered by your employer.
After that, you can open any type of account you’d like at most brokers, either in person or online. For any type of investment account, you’ll have to provide a range of personal and financial data, from your name, address, date of birth and Social Security number to your bank and employment information.
Find the Right Advisor
Ramsey is a strong advocate in the power of a good financial advisor. With so many landmines out in the investment world, it only makes sense to hire the services of a professional to guide you.
When you first start out, you might need to ask even the most basic questions, such as “how should I allocate my assets?” or “how can I choose the best mutual funds?” But as you grow as an investor, you might need more advanced assistance from your financial advisor, such as how to reduce your tax burden, how to allocate contributions between pre- and post-tax accounts, and how your estate plan should be set up to best take care of your heirs.
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