The investment hierarchy: Things to have in order before investing

Investing can be a great way to build wealth and achieve financial independence, but it's important to remember that it's not the only way. Before you start investing your hard-earned money, it's essential to have certain financial basics in order. Here are some things you should consider before diving into the world of investing.

Build an Emergency Fund

Before you start investing, it's important to have an emergency fund in place. An emergency fund is a sum of money set aside for unexpected expenses like car repairs, medical bills, or job loss. Having an emergency fund will help you avoid going into debt and make it easier to weather unexpected financial storms.

Experts recommend having three to six months' worth of living expenses in your emergency fund. This might seem like a lot, but it's important to remember that emergencies can happen at any time, and having a cushion will give you peace of mind.

Pay Off High-Interest Debt

If you have high-interest debt, like credit card debt or personal loans, it's important to prioritize paying it off before you start investing. High-interest debt can eat away at your finances and make it difficult to build wealth over time.

Focus on paying off your highest interest debts first, then move on to lower interest debts. This approach, called the debt snowball method, can help you build momentum and stay motivated as you work to become debt-free.

Save for Short-Term Goals

Before you start investing for long-term goals, it's important to save for short-term goals like a down payment on a house or a vacation. Short-term savings goals should be kept in a savings account or other low-risk investment vehicle to ensure that the money will be available when you need it.

Maximize Retirement Savings

If you have access to a retirement savings account like a 401(k), pension plan or  an IRA, it's important to maximize your contributions before you start investing in other ways. Retirement savings accounts offer tax advantages that can help you build wealth over time, and contributing as much as you can afford will set you up for a comfortable retirement.

Educate Yourself

Finally, before you start investing, it's essential to educate yourself about the markets, investment vehicles, and the risks and rewards of investing. There are many resources available, from books and online courses to financial advisors, that can help you develop a solid understanding of investing and make informed decisions about your money.

In conclusion, investing can be a powerful tool for building wealth, but it's important to have certain financial basics in order before you start. By building an emergency fund, paying off high-interest debt, saving for short-term goals, maximizing retirement savings, and educating yourself, you'll be well-positioned to make smart investment decisions and achieve your financial goals over the long-term.