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To ring in the New Year, CNBC Select is posting a new money challenge each day for the first week of 2021. Think of these tasks as your financial deep clean, based on expert advice, to help you align your money choices with what you care about most. These are simple tasks, but they do require a commitment. Are you in?

This is day five of seven.

Day Five: Set up your investing plan

Step 1: Assess your readiness

How do you know if you’re financially stable enough to start investing? It comes down to whether you have enough cash in your monthly budget to cover your basic expenses with some left over. It also has to do with debt and interest.

If you’re paying more than 5% to 10% interest on credit cards and loans, it’s worth prioritizing debt payoff, even if it means putting off long-term investing for the time being. The exception is if your employer offers 401(k) matching. If they do, experts recommend contributing just enough to your retirement plan to get the free match (so if your employer caps their contributions at 6% of your salary, contribute 6% and nothing more).

On the other hand, if the interest rates on your debt are lower than 5% APR, you might decide to prioritize saving and/or investing while you pay off your debt slowly. Thanks to the power of compound interest, you can often out-earn what you pay in interest with the money you invest in the stock market. (Speak to your financial planner, just to be sure this is the right plan for your needs.)

Step 2: Know your budget

Look at your monthly budget from step two and decide how much money you can afford to invest after you’ve met all your financial obligations.

Step 3: Know your timeline

When you need or want to use your money will have an impact on how you decide to invest it.

Stocks are more volatile, which means you can earn more over longer periods of time, with the potential for some ups and downs in between. Bonds, on the other hand, are more stable but tend to earn less. You want to find the right balance of risk and earning, depending on when you need the money.

According to the McLay and the Financial Gym philosophy, you should pick the right asset allocation for your short- and long-term goals.

Such goals might include:

  • Buying a house
  • Paying for your kid’s education
  • Taking a sabbatical or mini-retirement
  • Paying for your wedding
  • Paying for your kid’s wedding
  • Getting a big tattoo
  • Freezing your eggs
  • Getting a pet
  • Buying a new car

Map out your goals according to their timeline. Keep money you’ll need in the next two years in an accessible savings account. When you’ve reached enough in savings, financial advisors often suggest you invest your money according to these guidelines:

  • Goals within three to five years: Make sure at least 40% of your investments are in bonds (which are less volatile than stocks).
  • Goals within six to 10 years: Invest in 75% stocks and 25% bonds.
  • Goals past 10 years: This is most aggressive allocation since you have more time to weather market ups and downs. Keep 90% of your investments in stocks and up to 10% in bonds. .

Retirement is the most universal long-term goal that everyone must prepare for: “The biggest risk in retirement is outliving our money,” Brownstein tells CNBC Select.

Her advice is to attach a timeline number to your retirement goal, as opposed to an age, which can be too oversimplified: “If I am 40 years old and want to retire at 50, versus 40 years old and want to retire at 70, my ability to take risk and my need for growth may be very different. I may need more growth if I’m trying to retire in 10 years, as opposed to 30, but I will also have less risk tolerance.”

An alternative method

There’s no doubt that managing your finances is a balancing act. The “bucket” method of asset allocation may work well if you have clearly defined, specific milestones you want to reach according to the corresponding timelines.

But if you’re not so sure exactly what you want right now, let alone when you want it, an alternative strategy for you might be to simply go with a “sweet spot,” says Brownstein and split your money between stocks and bonds.

Need help with goal setting? Go back to step four of our 2021 Money Challenge.

Step 4: Choose the investment vehicle

Investment platforms take many forms, especially now with the dawn of fintech and sophisticated apps that put investing at our fingertips.

Start by looking at cost, advises Egan.

“If you’re not paying for something then you are the product,” Egan tells CNBC Select. While many apps advertise free trading and investing, they may be making money by collecting data about your user behavior or simply by displaying ads to you that may or may not align with your best interests.

“You should at least know what the other person’s incentives are,” says Egan.

This advice pertains to every kind of investment platform. Whether you invest with an advisor or just use an app that operates based on an algorithm, you should know whether you pay per transaction (every time you buy or sell shares) or whether you get charged a fee based on your earnings. The fee structure could make the difference as to what kinds of information you see as a user (and therefore what decisions you make).

Also notice the size of the fees: “Try and keep the overall investment cost to under 1%,” Brownstein says.

Fees vary based on whether you use a robo-advisors like Betterment and Wealthfront or membership plans like Ellevest, which charge a monthly subscription. Many platforms and programs come with coaching and advisory services, which could be an extra value, but if you’re paying an arm and a leg to invest, you should consider whether the service you’re getting is worth the cost.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.