Before you invest a single dollar, it's helpful to figure out exactly why you're investing. Here's how to start: Grab a piece of paper and list all of the things that you want to do in your life, focusing on those big moments that come with a price tag. Use time frames to help organize your goals and future plans.
Five years out, your plan might be to get married, have your first child and buy your first home in a nice neighborhood. Ten years out, maybe you'd like to have two more kids, which might mean a second car and a bigger house. Twenty years out, college tuition payments begin. And what about retirement?
If it seems like your future financial obligations are quickly adding up, don't get discouraged. That's why you're investing. The best thing you can do now is to be as specific about your future plans as possible, even if they're far off on the horizon.
Retirement is the perfect example. The amount you need to save for retirement substantially differs depending on when you plan to retire. If you want to retire early -- perhaps in your 50s instead of your 60s -- you may need to invest as much as 20 percent of every paycheck to have enough to live on for the remaining 30 or 40 years. If you plan to wait until age 65 in order to collect full U.S. Social Security benefits, perhaps you can get away with investing significantly less.
Keep in mind that not all retirements are created equal. Do you want to buy a home in Mexico and spend your golden years swinging away in a hammock? Or do you want to rent a one-bedroom apartment in midtown Manhattan and catch a Broadway matinee every Friday? Maybe you know that a full retirement isn't your thing. Perhaps you'd like to keep working, at least part-time, as long as possible. These are the kind of details that will determine your long-term investment strategy.
Now that you have your goals in place, it's time to familiarize yourself with the most common investment instruments.