Should you invest in the stock market?

Investing for beginners: Part 1 of 8

So, you have some spare cash and you want to put it to good use, but you don’t know where to start. You don’t know whether to leave it in a savings account, put it into your super fund, or dip your toe into the stock market. Worry not, as the investment order below can be used as a guide to sorting out your finances. The investment order consists of five sections: budgeting and paying off debts, an emergency fund, defining financial goals, short-term goals, and long-term goals.

1. Budgeting and paying off debts

This section is more beneficial for those with very little financial literacy and who have a hard time saving. Those who are responsible with spending and saving and have no debts may be able to get away with not needing a budget.

With that said, having a budget allows peace of mind, knowing exactly where your money is going and giving you greater control over where you want your money to go. If you have any debts, ensure you can make the minimum payments on them. You can also choose to pay off the debt. High-interest debts like car loans or credit cards should be paid off ASAP. However, for lower-interest debts like a mortgage or a HECS/HELP loan, it depends on how comfortable someone is with the debt and the opportunity cost of using that money for a higher-returning asset instead.

For those looking for an easy way to budget, the personal finance community often recommends the book The Barefoot Investor by Scott Pape. The book also has a chapter on getting rid of debt.

2. Emergency fund

An emergency fund is a high-interest savings account (HISA) that is used in case of emergencies, e.g., losing your job, medical bills, and repairs. The emergency fund should cover at least 3-6 months worth of living expenses.

To find a HISA, you can use this spreadsheet or the website The spreadsheet tends to be more up-to-date. If you have a mortgage offset, you could also use that as an emergency fund.

3. Defining financial goals

After having a solid foundation, you can start listing your financial goals that you would like to start saving towards, how much money you expect you’ll need, and when you want to achieve the goal. Below are some examples of financial goals (taken from UKPersonalFinance Wiki):

  • Large purchases such as electronics, equipment for hobbies, furniture or appliances, etc
  • Leisure activities such as holidays
  • Training, lessons, courses, post-graduate study, etc
  • Vehicles
  • A wedding
  • Buying a home
  • A year off from work
  • Parental leave
  • Refurbishing your home
  • Paying off your mortgage
  • Planning for your retirement
  • Retiring early
  • A future investment, such as buying property or starting a business
  • Saving for your children

4. Short-term goals

These goals are less than 5 years, where a common short-term goal is to save for a house deposit. Because of the short timeframe, using a HISA would be the safest and most reliable option. If saving for a house deposit, one could also use the First Home Super Saver Scheme to help save for the deposit faster.

5. Long-term goals

These goals are at least 7 to 10 years long, with a common goal being to retire comfortably. To retire, you can build up two sources of funds: investments in superannuation (also known as super) and investments outside super.

If one wants to retire at 60 or later, then it makes sense to put money into super, as 60 is the earliest age you can access super. To increase your chances of reaching the amount you want in super, it is important to review the super fund you are using and the chosen investment option(s). I go through this process in the article: Choosing investment options in super. There are also additional ways to increase your super balance, such as:

  • Carry forward contributions: you can normally only contribute a maximum of $27,500 in concessional contributions in the financial year, but you can use any unused contributions from the past 5 years. Although generally, it only makes sense to make extra contributions if your taxable income is above $45,000, as that is when the higher marginal tax rate occurs (Moneysmart).
  • Government super co-contribution: if you earn less than $58,442, you could make a non-concessional contribution so that the government can make an additional contribution for you.
  • Contribution splitting: contributing to your spouse’s super, which can be beneficial in growing a couple’s overall super balance.

Read this article to understand the difference between concessional and non-concessional contributions and PassiveInvestingAustralia’s other superannuation articles here.

If one wants to retire before 60, then on top of having enough money in super to retire at 60, they would need to have investments outside of super to use as income until they reach 60. This article can help decide how much to invest inside vs outside of super.

After taking of that into consideration and you are ready to start investing, then in the next article, I’ll be first setting realistic expectations on how the stock market behaves and emphasise that it is a long-term investment: The stock market: setting realistic expectations