Things to consider before you begin an aggressive or long term investing program.
Stabilize Your Current Situation Before You Invest
Before you consider investing in any type of market, you should really take a long hard look at your current situation. Investing in the future is a good thing, but clearing up bad or potentially bad situations in the present is more important. Pull your credit report. You should do this once each year. It is important to know what is on your report, and to clear up any negative items on your credit report as soon as possible. If you've set aside $25,000 to invest, but you have $25,000 worth of bad credit, you are better off cleaning up the credit first!
It doesn't make sense to start investing funds if your bank balance is always running low or if you are struggling to pay your monthly bills. Your investment dollars will be better spent to rectify adverse financial issues that affect you each day.
Next, look at what you are paying out each month, and get rid of expenses that are not necessary. For instance, high interest credit cards are not necessary. Pay them off and get rid of them. If you have high interest outstanding loans, pay them off as well. If nothing else, exchange the high interest credit card for one with lower interest and refinance high interest loans with loans that are lower interest. You may have to use some of your investment funds to take care of these matters, but in the long run, you will see that this is the wisest course of action.
Could you afford to add a little more to your mortgage payment each month? It might be a good financial strategy for you. Typically, paying extra on your mortgage each month can save you interest and help you pay off the loan sooner. But, before you increase your mortgage payments, look closely at your loan's interest rate, your tax situation, and your complete financial picture.
When you prepay your mortgage, in effect, you earn the mortgage rate on the extra money you pay.
For example, if your interest rate is 3.5% and you decide to add extra money to your monthly payment, your pre-tax earnings on that extra payment would effectively be 3.5%. This means that you would be better off prepaying your 3.5% mortgage unless you could earn more than 3.5% by investing that extra money elsewhere. Before prepaying, compare your mortgage rate to the pre-tax rate you could earn from an alternative investment to determine which is the best option.