Investing Basics
You don't need to be rich to start investing. You need to be ready.
When to Start Investing
In the 10-Step Financial Framework, investing begins at Step 7: The Wealth Starter. That means you should have an emergency fund in place (Step 5), a working budget (Step 6), and your non-mortgage debt cleared (Step 4) before you direct meaningful money into investments.
The exception: if your employer offers a 401(k) match, contribute enough to get the full match immediately, even if you're still on Step 2 or 3. A dollar-for-dollar match doubles every contributed dollar up to the match limit, which is unusually hard to replicate elsewhere.
The Wealth Starter step targets allocating 20% of your income toward savings and investing. We help you figure out the right split between savings, retirement, and brokerage based on your age, goals, and tax situation.
Types of Investment Accounts
🏢 401(k)
Employer-sponsored retirement account. Contributions are pre-tax (reduces your taxable income today). Many employers match a percentage of your contributions. The 2026 limit is $23,500 per year ($31,000 if you're 50+). Always contribute enough to get the full employer match.
🌐 Traditional IRA
Individual retirement account you open yourself. Contributions may be tax-deductible depending on your income. Growth is tax-deferred. You pay taxes when you withdraw in retirement. The 2026 limit is $7,000 per year ($8,000 if 50+).
⭐ Roth IRA
Contributions are after-tax, but growth and withdrawals in retirement are completely tax-free. For most people under 40 earning under $160,000, this is the single best retirement account you can open. Same $7,000/$8,000 annual limit.
💼 Brokerage Account
A regular investment account with no tax advantages and no contribution limits. Good for money you want to invest beyond what retirement accounts allow. You can withdraw at any time without penalties (though you'll pay capital gains tax on profits).
The Power of Compound Interest
Compound interest is what happens when your money earns returns, and then those returns earn returns. It's the reason $200 per month invested at 25 turns into significantly more than $200 per month invested at 45, even with the exact same strategy.
Example: $300/month invested starting at age 25 with a 7% average annual return grows to roughly $680,000 by age 65. Start at 35 and the same $300/month reaches about $340,000. That extra decade didn't add $36,000 (10 years x $3,600/year). It added $340,000. That's compound interest.
What About Individual Stocks?
We get this question a lot. Picking individual stocks is exciting. It's also speculative and requires significant knowledge and time. For most people building their financial foundation, broad index funds (like total market index funds or target-date retirement funds) offer diversification, low fees, and historically strong returns without requiring you to become a part-time stock analyst.
Once your retirement accounts are funded and your financial foundation is solid (Steps 7-8 complete), individual stock investing can be part of your brokerage account strategy. But it should never be the foundation. The foundation is boring, diversified, automatic contributions. The exciting stuff comes after.
⚠️ Important Disclosure
NorthStar Financial Education does not provide investment advice. The information on this page is for general educational purposes only. We are a financial coaching and education company, not a registered investment adviser, broker-dealer, or financial planner.
NorthStar Financial Education is not affiliated with any registered investment advisory firm in any advertising capacity. We do not provide securities recommendations, investment management services, or personalized investment advice.
For investment management, consult a licensed investment adviser. All investment decisions should be made with the guidance of a qualified professional who understands your individual financial situation, goals, and risk tolerance.
Ready to Build Your Investment Plan?
We'll help you figure out which framework step you're on and when you're ready to start investing. Book a free consultation to get a personalized roadmap.