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3 things to do before you invest in ASX shares

Sebastian Bowen
stack of three books with reading glasses on top

Normally, us Fools will be bending your ears telling you all the wonderful benefits of investing and why everyone should be doing it!

Whilst this is still the case, I thought I would discuss a few things that everyone should make sure they do or have before getting started with investing. Buying shares is all about building long-term wealth, so before this can occur, you need to make sure your foundations are strong (like any building, really).

Number 1 – Pay off any high-interest debt

Debt works in the opposite way to investing – compounding against you and draining your wealth at an accelerating rate. That’s why its essential to make sure you get rid of any personal debts you have before you even think about shares.

I’m not talking about your home mortgage or HECS student loans here – it’s credit card debt, car payments and personal loans that are the real killers. Paying off an 18% credit card debt gives you a guaranteed return of 18% – probably more than you could get from the share market anyway.

Number 2 – Make sure you have enough cash first

A surprising number of investors make this mistake. Investing is exciting, but some investors get a little too excited and deploy all cash available into the share market. This is all fine until it’s not – emergencies happen, and you don’t want to be in a situation where you need to sell shares because you’ve crashed your car or need to go into hospital.

I always like to have at least a few months of living expenses saved up in cash at any given time – this is money that I don’t invest but keep for a rainy day. Any surplus cash on top of this is (of course) good to go into shares.

Number 3 – Have a budget

I know this is a boring, over-preached tip, but a budget can really help you see where your money is going, and where you can find additional cash that might serve you better invested than on buying something.

It also helps you to see how sustainable your lifestyle is. For example, if you open your budget and find you’re spending 60% of your family’s income on mortgage payments, it might a be a valuable wakeup call.

Just planning out your weekly/monthly expenses and incomes can really shed clarity on where you might end up in 10 years, so just knock up a budget – you’ll thank yourself later!

Foolish takeaway

Just by doing some minor personal housekeeping before putting money into shares could save you a lot of time and worry down the road. The little things add up when it comes to money, so hopefully these 3 tips help shed some light on what your financial priorities might be.

The post 3 things to do before you invest in ASX shares appeared first on Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019