As many of you know, I’m a big fan of helping folks reach their retirement dreams and build wealth as soon as possible. When you reach Baby Step 4 and start investing 15% of your income for retirement for the first time.
I know it’s an incredible feeling! You may start to feel invincible. Not only are you debt-free with a fully-funded emergency fund, but you're also building wealth for the future. Life is great!
But listen up: Even for those of you in Baby Step 4, life still happens. So we’re going to talk about those few times when you might need to push the red pause button on that retirement savings plan. Yes, you heard me right. Here are a few examples of when I recommend you stop investing . . . for a short time!
Reason #1: You Have Debt
Okay, if you’ve been investing for any period of time, this might hurt. I get that. But being in debt is like being handcuffed to an iron ball and, in the long run, pushing pause is the best way to get rid of that chain so you can invest even more in your future.
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Think about it: Your income is the most important wealth-building tool you have. So if you’ve got your most valuable wealth-building tool tied up in student loans, credit cards or car loans, it’s going to be hard to . . . well, build wealth.
But don’t worry. Once you get rid of that debt, you can resume investing at warp speed! You’ll be truly focused and intense, and nothing will be able to hold you back from where you need to go!
Reason #2: You Don’t Have Your Emergency Fund
Hear me loud and clear on this one. Preparing for retirement before you prepare for emergencies is not the best idea. Life happens and, when it does, it’s unexpected. That’s why it’s so important to have a fully funded emergency fund. If you’re already investing and Murphy comes for a visit, it’s okay to take a break.
Think about it this way: If you’re busy building your retirement fund but the roof caves in and you don’t have money set aside for emergencies, you’re going to be up a creek without a paddle. You’ll probably think about dipping into your retirement fund or putting that emergency on a credit card.
Take it from me: Both of those options are going to run you dry.
I suggest taking a step back to Baby Step 3 and saving three to six months of your monthly expenses. Sounds like a lot of money, right? It should be. When life comes knocking, you want to make sure you’re covered without robbing your future.
Reason #3: You’re Saving Up for a Home
Okay, technically, saving up a down payment for your home is Baby Step 3b. But, for some people, their season to start investing comes before their season to buy a home. So, it's okay to stop investing and pile up cash for your down payment—but do it quickly.
We’re talking a matter of months to one or two years tops, people—not a five-year detour. You don’t want to lose momentum for that long. Once you’re finished, get back on track with your retirement plan.
Reason #4: You Lose Your Spouse
This isn’t something we all like to think about, but when your spouse passes away or you go through a divorce, the fact is that your financial picture is going to change. Don't make any important decisions right away—for a couple of reasons.
First, you need to give yourself some time to let your emotions settle. Life insurance, inherited retirement funds and alimony or child support payments will make a big difference in your budget, so you'll need a clear head to handle all that.
Second, it’ll take a while for you to know for sure what your financial picture looks like. How much life insurance is there? Will you be receiving or paying child support? How much?
Keep the bills paid and food in the fridge but put any major money issues such as new investing decisions on hold until you have the answers to these questions.
Reason #5: Other Major Life Events
In the case of a job loss or major medical event, you may find yourself temporarily living off your emergency fund. Great! You heard me right. That's what it's there for.
But any time you drain your emergency fund, your top priority is to replace that money as soon as you can. Back to Reason #2. Stop investing until you get back to work and can rebuild your emergency fund. Then jump back into your investing plan.
To temporarily stop investing through your employer's retirement plan, just let your human resources department know you need to stop making contributions, and they'll have a few forms for you to fill out. Same goes for your investment advisor.
Remember, though, this is not a permanent situation.
You want to get back to investing as quickly as possible. So set your goals and get intense about meeting them and getting back in the game.
Get Great Advice to Keep Your Plan on Track
Whether you're just getting started investing, getting restarted, or moving full-steam ahead in your retirement plan, you need the advice of an investment professional. If you’re looking for someone highly qualified in your area, you’ll love our SmartVestor Pros! Not only are they thoroughly vetted, but you can get connected for free. Be sure you’re getting the help you need to put your plan into motion!