How to Start Investing in 2024: A Beginner’s Guide

Watching the news in 2024 can seem like a wild ride on one of those sketchy roller coasters at the county fair. The economy? Uncertain. The housing market? Anything but normal. The stock market? Who knows . . .

You might feel like it’s a crazy time to start investing, but hear us out: The best time to get control of your finances and start saving for the future is today!

Trying to figure out the where, when, and how of investing can feel like rocket science, but it’s a lot easier to get in the game than you think.

Let’s look at everything you need to know to get started with investing. We’ll go through a step-by-step plan you can follow to get in the game and set yourself up for success at the investing starting line. Welcome to Investing 101!

 

How to Start Investing in 7 Steps

Starting anything new can be intimidating—especially when it’s something that can have long-term effects on your finances—but don’t give up. Anyone can invest . . . including you. Here are seven easy-to-follow steps (along with some investing basics) to help you get started.

1. Set your investing goals.
2. Figure out how much you’re going to invest.
3. Choose your investing accounts.
4. Choose your investments.
5. Pick an investment strategy.
6. Open an investing account.
7. Work with a pro and keep learning.

Let’s get started!

We’ve always said one of the keys to getting out of debt is knowing your why. Why are you getting out of debt? What’s the big, specific goal you have that’s driving you to kick debt to curb? Having a definite reason for getting out of debt gives you a finish line to look forward to in your race to financial freedom.

That’s also true for investing—the key to starting your investing journey on the right foot is being clear about your goals. Why do you want to start investing? Is it to build your retirement? To pay for your kids’ or grandkids’ college? To save a down payment for your first house?

Getting clear on why you want to invest your hard-earned money will help you with the next step, which is to . . .

Your personal savings rate makes a huge difference in your retirement savings (or in your short-term savings as well), and research shows it’s the most important factor in successfully saving for retirement.¹ 

If you’ve been following the 7 Baby Steps to get out of debt and build wealth, you know that in Baby Step 4, we recommend investing 15% of your gross income toward retirement.

Market chaos, inflation, your future—work with a pro to navigate this stuff.

Why 15%? Because there are other goals you need to set money aside for at the same time you’re investing—like paying off your home early or saving for your kids’ college fund. Just remember, when it comes to juggling college savings and your own retirement goals, saving 15% of your income for retirement comes first.

Think about it: If you invest 15% of your income every year for 30 years (assuming an average 11% return rate), that adds up to literally millions of dollars because of the miracle of compound growth. Pretty neat, huh?

With all those debt payments kicked to the curb in Baby Step 2, you’ll be able to throw that 15% at your retirement without blinking an eye. Just program your paycheck to remove that 15% automatically and you won’t even miss it. Then you can get a clearer picture of how much you want to invest for the kids’ or grandkids’ education, or your other short-term savings goals.

The next step is to decide where to invest your money. And you’ve got plenty of investing account options—aka investing vehicles in financial speak.

Different types of investing vehicles (like IRAs or 529 college savings funds) are made for different investing goals.

Retirement Accounts

When it comes to saving for retirement, there’s a simple rule of thumb to keep in mind—match beats Roth beats traditional. Here’s how that might play out:

• If you have a match through your workplace retirement plan, start with your 401(k) and invest enough to at least receive that full employer match.
• After that, you (and your spouse, if you’re married) can open a Roth IRA and max out your contributions there.
• If you still haven’t hit 15% after you max out your Roth IRA, just go back to your 401(k) and bump up your contributions until you do.

This is the tried-and-true process that thousands of Baby Steps Millionaires followed to build their seven-figure net worth—and it’ll work for you too!

Now, if you’re self-employed or a small business owner and don’t have access to a 401(k), don’t worry. You can still save for retirement with a SIMPLE IRA or SEP IRA:

• A SIMPLE IRA plan makes it easy to save for your own retirement while also contributing to your employees’ retirement savings.

• A SEP IRA is another retirement plan option for small-business owners or self-employed folks. But unlike a SIMPLE IRA, which lets employers and employees contribute to the plan, only employers are allowed to contribute to SEP IRAs on behalf of their employees.

Education Savings Accounts

Once you’re investing 15% of your income for retirement, you’re ready to start saving for your children’s college fund (that’s Baby Step 5). But remember, your retirement comes first.

Here are two of the most popular investing options for college savings and why we recommend them (or not):

• 529 Savings Plan: A 529 savings plan is a tax-advantaged account that lets you set aside money for educational expenses. And if your child or grandchild decides to skip college, no problem. With a 529 plan, you can roll over any unused money into a Roth IRA for the plan’s beneficiary (if you meet several qualifications).²

• Education Savings Account (ESA): An ESA is a trust or custodial account that lets you invest money to pay for someone else’s education.

ESAs are different from 529 plans in a few important ways. First, ESAs have a contribution limit of $2,000 per child per year, while there’s virtually no limit on 529 plan contributions.³ And with an ESA, you can choose almost any kind of investment, including our number one recommendation—mutual funds.

Short-Term Investing Accounts

Okay, folks. If you’re looking for ways to save and grow your money short-term, you can look at index funds or a money market account:

• Index Funds: Index funds are types of mutual funds designed to mirror a market index like the Dow Jones or S&P 500. The longer you keep your money in an index fund, the more likely you are to see growth. That makes index funds a great option for growing your savings for a down payment or buying your first rental property, as long as you’re not planning to use that money for at least five years.
• Money Market Account (MMA): Money market accounts are great options for low-risk, short-term savings. This is a place for money like your emergency fund or savings you plan to use in five years or less. But keep in mind that the interest you’ll earn likely won’t keep up with inflation, so that makes it a bad choice for a long-term investment.

Once you know what kind of investing account to open, you’ll need to pick your actual investments.

There are many types of investments to choose from, but good growth stock mutual funds are the best way to invest for long-term, consistent growth. Here’s why.

A mutual fund is an investment that pools money from a group of people to buy stocks in different companies.

Unlike ETFs and index funds, mutual funds are actively managed, meaning an investment professional makes decisions about how to invest the fund’s money. Also, there are thousands of mutual funds, which means you can choose funds that have a long history of outperforming other funds in their category.

What types of mutual funds should you pick? Great question. Let’s talk about how to build your investment strategy with mutual funds.

Like we said earlier, good growth stock mutual funds are the best way to invest for long-term, consistent growth. Why is that? Because they let you spread your investment dollars across dozens (or even hundreds) of company stocks—from the largest and most stable to the newest and fastest growing.

Spreading your money around like this is part of an important investing principle called diversification, and it helps you avoid the risks that come with buying single stocks.

Ever heard the expression, “Don’t put all your eggs in one basket”? Well, mutual funds put your eggs in many different baskets. And we recommend spreading those eggs out even more by investing in four types of mutual funds:

• Growth and income (large-cap funds)
• Growth (mid-cap funds)
• Aggressive growth (small-cap funds)
• International

Yep, it’s that simple! Keeping your portfolio balanced with these four types of funds can help you minimize your risk and still take advantage of the returns the stock market can offer.

If you’re confused about your fund options, talk to a financial advisor or investment professional. They can help you make sense of the details so you can feel confident about how you’re investing your money.

Whew! We’ve been laying out our investing choices and strategy, so now it’s time to actually open an account and start making contributions!

So where do you even start? It’s actually pretty simple. Just remember: Match beats a Roth beats traditional. Here’s how it works:

• Start with your workplace plan. Most employers offer a match when you invest in your workplace retirement plan—a 401(k) or Roth 401(k) for most people. If you don’t have a Roth option, invest up to the match in your 401(k), then skip to the next step. If you do have a Roth option and you have a selection of good growth stock mutual funds to choose from, you can invest your entire 15% at work and you’re done. 
• Open a Roth IRA. Like we said before, the Roth IRA is the rock star of retirement plans. You can invest in the best mutual funds, and you won’t have to pay taxes on the growth in the account when you use it in retirement. Max out a Roth IRA for yourself and your spouse if you’re married. 
• Go back to your workplace plan. If you’ve maxed out your Roth IRA and you still haven’t reached your 15% goal, bump up your contributions to your 401(k) until you do.

It’s super easy to start investing in your employer-sponsored retirement plan, like a 401(k) or 403(b). Here’s how to open an account: 

1. Check with your HR department to see if you’re eligible. A lot of companies will allow you to enroll as soon as you’re hired, but some require you to hit the one-year mark before you become eligible.
2. Fill out any required paperwork and submit it to HR online or in person.
3. Pick and choose your investments.
4. Set up automatic contributions.

Opening a Roth IRA is just as easy:

1. Set up an account online with help from an investment professional.
2. Fill out that pesky paperwork.
3. Pick and choose your investments.
4. Set up automatic contributions.

Your investment professional can also help you open an account and choose your investments to save for your kid’s college. And once your house is paid off, you can work toward maxing out your tax-advantaged retirement accounts.

 

The last step to set yourself up for investing success is to actually start investing. Don’t let the economy or the scary, exaggerated news about everything that’s wrong with the stock market or the housing market keep you from getting on board. Instead, get with an investing expert who can give you real knowledge and guidance about starting your investing journey.

You’ll have lots of questions—it’s a given. “Which are the best funds to choose?” “How do I manage my 401(k) or set up a Roth IRA?” Your investment professional can show you how to start investing and answer all your questions so you can make the best decisions possible for your retirement savings.

The right investment professional will:

• Educate you on investment choices so you stay in the driver’s seat
• Help you keep your investments on track with regular check-ins
• Offer a client-first approach

When Should I Start Investing?

Before you start investing, you need to work your way through the first three of Ramsey’s 7 Baby Steps. That means saving $1,000 for a starter emergency fund, paying off all your debt except your mortgage using the debt snowball method, and then saving a fully funded emergency fund of 3–6 months of expenses.

If you’re new to the 7 Baby Steps, no problem! Simply put, it’s a plan millions of people have followed to get out of debt and start building wealth for retirement. Let’s break it down:

• Step 1: Save $1,000 for your starter emergency fund.
• Step 2: Pay off all debt (except the house) using the debt snowball.
• Step 3: Save 3–6 months of expenses in a fully funded emergency fund.
• Step 4: Invest 15% of your household income in retirement.
• Step 5: Save for your kids’ college fund.
• Step 6: Pay off your home early.
• Step 7: Build wealth and give generously!

Here’s the deal—your income is your most important wealth-building tool. And as long as it’s tied up in monthly debt payments, you can’t build wealth. It’s like trying to fill a bucket with water when there’s a hole in the bottom—it just doesn’t work.

By building a debt-free foundation and stashing a good chunk of savings in the bank, you’re setting yourself up to build wealth the right way.

In fact, there’s a whole group of millionaires called Baby Steps Millionaires who’ve followed the 7 Baby Steps to hit the million-dollar mark. On average, they paid off all their debt and reached a million-dollar net worth in about 20 years.⁴

Connect With an Investment Pro

As you start investing and working with a pro, keep this in mind: Never invest in anything you don’t understand. It’s your money! Ask as many questions as you need to and take charge of your own investing education.