Whether you have $20 or $200,000 to invest, the objective is the
same: to make your money grow. The means, however, vary dramatically
based on the amount of money being invested, the state of the market,
and your own investing style.
Steps
Pay off high interest debt. If you have a loan or credit card debt
with a high interest rate (over 10%) there's no point in investing your
hard-earned cash. Whatever interest you earn through investing (usually
less than 10%) won't make much of a difference because you'll be
spending a greater amount paying interest on your debt.
For example, let's say Sam has saved $4,000 for investing, but he also
has $4,000 in credit card debt at a 14% interest rate. He could invest
the $4,000 and if he gets a 12% ROI (return on investment--and this is
being very optimistic) in a year he'll have made $480 in
interest. But the credit card company will have charged him $560 in
interest. He's $80 in the hole, and he still has that $4,000
principal to pay off. Why bother? Pay off the high interest debt first
so that you can actually keep any money you make by investing.
Otherwise, the only investors making money are the ones who loaned it to
you at a high interest rate.
