Once you practice good money management skills, have an emergency fund in place, and enough savings to pay for short-term needs, you are ready to invest. Make sure you understand the following basic principles of good investing.

Know Your Goals

List your financial goals. Your goals might include putting a down payment on a vehicle or home, planning for education expenses, saving for retirement or providing care for aging parents. Whatever they are, the more specific you can be, the better. Next, estimate how much your goals will cost and how long it will take to achieve them. The following work sheet can help.

Goal	Up To 3 Years		4–6 Years		7+ Years
Goal	Time	$ Needed	Time	$ Needed	Time	$ Needed
Sample Goal Down payment on a home.					10 yrs.	$ 20,000
1.
2.
3.
4.
5.

Invest Regularly

Invest a set amount of money on a regular basis whether investment markets are moving up or down. This strategy is known as dollar cost averaging. When prices are high, your regular contributions buy fewer shares (units of ownership in a company or mutual fund); when they are low, your contributions buy more. This approach may tend to spread investment risk over time.

Think Long Term

Give investments plenty of time to grow and compound. Do not attempt to “time” decisions to buy and sell based on market fluctuations.

Act Intellectually, Not Emotionally

Do your homework; then stay on course. Do not let emotions, peer pressure or the latest news influence your investment decisions. If you choose investments by leaping into whatever is currently popular, you may be headed for recurring losses over time.

Know Your Risk Tolerance

If you are a conservative, low-risk investor, you want to protect the money you have now. If you are an aggressive, higher-risk investor, you are willing to accept the risk of losing some of your money if there is the potential for earning higher returns. A moderate investor is somewhere between the two.

Your personal risk-tolerance level may change according to several factors:

Age.
Current and expected income.
Financial responsibilities, or how possible losses would affect your situation.

Diversify Your Investments

Avoid keeping all your money in one place. It is generally better to diversify by putting money into several investments. This way, if one investment loses money, the others may offset those losses. Diversification does not eliminate risk, but it can help minimize risk.

Increase Your Knowledge

Learn all you can about investing and about specific investments. The United States Financial Literacy and Education Commission provides more information. Visit www.mymoney.gov/saving.shtml for links to more information on saving and investing.

Review Your Plan

Evaluate your investment plan at least once each year and every time you experience a major life event, such as college graduation, or marriage. If necessary, adjust your investments to make sure they match your goals, risk tolerance and timeframe.

Make Investing A Priority

If saving money to invest seems difficult, consider these suggestions.

Make small adjustments to your budget. Dine out less or rent videos instead of going to the movies.
Invest monetary gifts from family or bonuses you receive from work.
Work an extra job, or ask for overtime hours, and invest your extra pay.
Consider investing your federal income tax refund, if you receive one.

Whatever you do, do not invest money from your emergency fund because the money may not be available when you need it.

Seek Help

Investment decisions can be complex. You may want to consult a financial planning professional for in-depth guidance.

Next: Know Where To Invest

Updated Thursday, May 01, 2008

HELPFUL FORMS & LISTS

Personal Budget Work Sheet