Young & Invested: Read this before you invest
Are you prepared to dive into the market?
Welcome to my column, Young & Invested, where I discuss personal finance and investing for Gen Z and Millennials.
This column aims to be a resource for young investors navigating an ever changing financial, political and social landscape as they try to build wealth. Tune in every Thursday for the latest edition.
Edition 27
I started investing when I was 19.
I had no plan, few savings and was purely in it to win it. A bit like how you approach a Blackjack table at Crown Casino the day you turn 18 – although maybe that’s a Perth thing. My point here is that I had no idea what I was doing, past my ability to set up a brokerage account and transfer funds into it.
Beginners often get wrapped up in market noise, the excitement of investing your first dollar and a new world of BlackRock, Buffett and Bitcoin. But there are several things you need to do before diving in. Today I’ll be going through some of my non-negotiable steps before starting to invest.
Building a safety net
Counter-intuitively, when I began investing, I was in my most financially irresponsible phase of life. I think that was a mix of teenage ignorance, poor financial habits and the comfort in my circumstances. Living at home with few overheads besides the gym and my Spotify subscription, the concept of a cash safety net was incredibly hard to rationalise.
And why bother? I could just throw my part-time income into whatever specky investment I had recently discovered and cross my fingers that it worked out. But this was a privilege I acknowledge many don’t currently have. And I was certainly underprepared for an event in which my circumstances may have suddenly changed.
But why do we need a padded emergency fund if we’re already investing?
During the course of your investment horizon, it’s highly likely you’ll have an unexpected financial obligation pop up. This can be anything from an unexpected vet bill, broken car windshield to getting laid off from your job.
If an unfortunate circumstance eventuates and you have insufficient savings, you face the risk of selling your investments when you don’t want to which can create tax liabilities and an opportunity cost for future returns. This is why we cannot consider our investments and emergency fund synonymous.
Whilst an emergency fund may seem like just another savings account, it serves a distinct purpose – separate from money set aside for discretionary spending or short-term goals like funding a Euro summer.
Beyond protecting you from unexpected expenses, it also gives you freedom to invest with more confidence and clarity. By taking the pressure of sudden cash needs out of the equation, it frees you to make investment decisions without short-term worries. For young investors, having this buffer supports a long-term strategic mindset.
So how much should you have?
According to Finder’s Consumer Sentiment Tracker, the average Australian in 2025 has $34,002 in cash savings. If you’re reading this and thinking the number is alarmingly high, don’t fret. Once we break this down into savings by age group, the figure becomes a little more digestible.
Source: Finder. 2025.
Below are a few steps to get the ball rolling.
- Figure out where you’re at
Every day we mindlessly spend money on food, transport, subscription services and countless other things. It can be difficult to keep track of where your money goes. The easiest way to take stock of your situation is by creating a personal cash-flow statement to give yourself an overview of what’s coming in and out every month.
To calculate your emergency expenses, most people only count the essential items, but it’s entirely personal how bare bones you make this. You could exclude non-essentials like discretionary clothing, entertainment subscription services, and hairdressers. But others may find that their bi-annual hairdressers’ appointment is indeed necessary (unfortunately I fall into this category), therefore choose to include this in their calculation.
We’ve devised a helpful worksheet for this here.
- Set a savings target
The absolute minimum savings target for your emergency fund is generally 3 months. But given this is a highly personal consideration, some may feel more comfortable with 6 months. Additional liabilities such as mortgage repayments, car loan and child-related expenses can also escalate this figure.
- Find a decent savings account
Avoid the temptation to put the funds into investments, even if you perceive them as ‘low risk’. The primary purpose of your emergency fund is not to optimise capital growth or passive income, but to be accessible in a time of need. Vanilla checking or savings accounts probably fair best here.
The recent interest rate cut environment has led to banks slashing their savings rates to the dismay of most consumers. But if you shop around and compare rates across institutions, you’ll find minor discrepancies in what banks are offering.
Kill the bad debt
We generally regard financial liabilities in two forms: good and bad debt. Good debt can be defined as something that is used to purchase an asset – think a mortgage or your outstanding HECS. On the other hand, bad debt is used to finance consumption – I’ll use my monthly credit card bill as an example.
I’m not going to incite debate about the definition of good or bad debt, my colleague Mark actually did that in his article here. But investing instead of paying down bad debt only makes sense when you earn more on your investments than the cost of interest on your debt.
For example, unlike most debt, HECS actually doesn’t accrue interest. Instead, it is indexed each year as by the lower of the Consumer Price Index or Wage Price Index. Barring the last few years, historically this has been quite low – around 3%. For this reason, most people with extra cash choose to invest it in the market instead of their HECS with returns for the S&P 500 averaging about 10% p.a.
On the other hand, high-interest debt like credit cards charge an annual percentage rate (APR) which Canstar estimates to average 20% in Australia – a return that’s more unlikely to be achieved through investing.. Therefore, paying this off provides better ‘returns’ on your money.
Manage your money
Getting your first adult paycheque is pretty exciting. It can be tempting to splurge any additional funds you have into discretionary spending.
A helpful guide on how to allocate your post-tax income is the 50-30-20 rule that categorises spending into needs, wants and savings, allocating a respective 50%, 30% and 20% to each.
Source: The FinLite Journal.
The important bit here is the allocation towards your future. Whether that means contributing to your emergency day fund or towards building wealth—it is recommended that 20% is the minimum amount to assign. Naturally if you’re in the position to increase this allocation that would be ideal, but I acknowledge this won’t be the case for most. But not everything that falls under this category was created equal. As I mentioned above, high-interest debt and your emergency fund should take priority.
Clarify your goals
The easiest way to get clear on why you’re investing is by asking yourself “what am I investing for?”. If you’re in with the elusive goal of simply getting rich, I hate to break it to you but it’s not going to get you far. This ambiguity about your goals (and consequent investment strategy) can sabotage long-term wealth creation and encourage into poor investment decisions like performance chasing. Focus on a series of concrete goals and you are more likely to end up building real wealth.
Mark has previously written a great article about how to set an investment goal.
Conduct a literacy check
When I was 19, I thought I pretty much knew all there was to know about investing. Now at 26, I find myself ending the day with more questions than answers. In the wise words of Socrates, I’ve realised that “all I know is that I know nothing”. This quote is a philosophical onion, but to avoid devolving into debate, let’s just take it at face value. You never really know everything, and it can be helpful to review knowledge gaps before committing large sums of your income in the market.
This knowledge gap is a dilemma I believe most young investors face. Unless age has gotten the best of me, I don’t really recall sitting in a financial literacy class at school. I’d argue that unless you picked the relevant subjects, concepts like superannuation and investing remained largely vague to the general cohort upon graduation.
We can see evidence of this through the deteriorating results of the Household, Income and Labour Dynamics in Australia (HILDA) survey on financial literacy. The questions on this quiz weren’t specifically tailed to investors, rather tested general concepts. But for an active investor, the knowledge demand is much higher. And I’m not saying you must know every detail about every asset class, but the benefits of higher literacy have a direct impact on financial outcomes.
Source: Financial literacy and vulnerability: lessons from actual investment decisions. Milo Bianchi. 2018.
Shani has previously created a helpful quiz to test how strong your investing knowledge is. This is a great start.
Concluding thoughts
Financial responsibility might not be the most riveting topic I’ve covered in my column, but sometimes the valuable lessons hide in the least suspecting places.
I cringe when I reflect on how much better my position would be today had I taken even half of these steps before investing. But hindsight is 20/20. Whilst I can’t rewrite the past, considering these steps might help you shape a better financial future.
