How to Prepare for Investing as a Family

Taking the time to prepare correctly can help you create a solid financial future.

The first step you need to do before investing is to create a budget for your regular expenses. This does not have to be a complicated or overly strict process, but you at least need to see what is coming in and going out.

You want to make sure everything seems balanced. In this process, you may spot areas where you're overspending and just didn't realize it. This will also show you how much extra money you have to work with on a monthly basis. Do this for awhile until you have a general pattern on your finances.

Pay down your debt before you heavily invest. If you have consumer debt (non-mortgage debt such as credit cards and car payments), you need to realize that it can cancel out the good that investing does for your family.

Not only does paying your debt off cause less money to leave your household in interest payments, but you can also use the extra cash flow (that was all going to payments) to fund your investing as well.

Protect having to touch your investments by setting up an emergency fund as a financial buffer. You don't want to put yourself in a situation where you have to draw out of your investments to pay on a debt or even a major unexpected expense. The penalties for doing this are usually high, both from a tax standpoint and how much money from interest you lose in the process.

This is why you should also have an emergency fund that you can easily access. The amount you need is going to vary by family, but at least a couple of months expenses is a good amount. This would cover most job layoffs, medical bills, or vehicle repairs, which are three common financial situations for families. It may take you a year or more to develop this kind of foundation, but long-term it will make investing an easier process.

Begin investing, but do some research first. Never enter into anything you don't understand. Read some books and talk with several people before making final decisions for your investment plan. Also, don't be afraid to adjust your plan as your family grows and changes.

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