Settle Your Finances Your personal finances need to be in squeaky-clean order before you ever think of placing that exciting first stock trade. Do not ever rush past this step or it will come back to haunt you.

Erase credit card debt
One of the critical keys to investing is only to use money that is free of other obligations. Thus, if you are carrying a revolving balance on your credit cards, it is not free! Here's why: Many credit cards have an annual interest rate of 16%-21%.

Let's say you have $5,000 to invest, but you also have $5,000 in credit card debt with an average annual interest rate of 18%. If you invest the $5,000 instead of using it to pay off the credit card, you will have to get an 18% return on your investment after taxes (or about 24% before taxes) just to break even.

Credit card debt remains the single best answer we know to the question "Why can't I ever seem to get ahead?" As of this writing, there are more than a billion credit cards in circulation in the United States. That's almost four cards for every American man, woman, and child. Nearly 70% of all credit card holders in the U.S. today carry a revolving card balance each month (i.e., they're just paying the minimum amount due).

On a card with an annual interest rate of 18%, making minimum payments (2% of the balance or $10, whichever is greater) on just a $1,000 balance is going to take you a little over 19 years to pay off. During which time you will pay close to $1,900 in interest on that $1,000! It is enough to want to get into the credit card issuing business, isn't it? When you're ready, you can think about investing in a company that does.

As you now chart your path to becoming an investor, you simply can not begin until you stop letting the credit card companies feed on you. Find out the details on how to pay down your debt in the Credit Management section. Whatever it takes, pay off that plastic.

A plan for regular saving
How well are you regularly paying yourself? In other words, are you routinely setting aside an adequate established percentage of your paycheck every payday? Do you only set aside money when there is something left over? Even worse, are you finding there is nothing left to pay yourself with?

If you answered yes to either of the last two questions, you are simply not ready to invest yet. It is time to examine why you are not paying or cannot pay yourself. It is not wise to investing with your lunch money, next month's rent, or with money that should go toward paying off a credit card. As stated above, only invest money that is free of other obligations.

The rule of thumb is to save around 10% of your annual income. For some, it will be closer to 5% and others might manage to put away 15%. The important thing is to live below your means and establish a regular "rhythm" of savings.

A plan for life's hiccups
We would be remiss if we glossed over the importance of having an emergency stash of cash at the ready for life's inevitable bumps. The law of life dictates that when the hot-water heater goes "BLAM," the chances of your teenager accidently driving into the garage door are quadrupled. A cushion of short-term savings, three or six months' worth of living expenses, can keep you from having to rely on high-interest plastic, or worse, ending up in bankruptcy court.

We have devoted the saving section on our site to helping you figure out how much of a cash cushion you need, and the most suitable place to keep it. We treat short-term savings, your emergency fund and any money that you might need to get your hands on in the next five years or sooner, very differently from long-term investments.

When your cash cushion is funded, it is time to move on to your long-term savings. If you already are routinely saving, are you exploiting all the possibilities you have to make that money grow tax-deferred, i.e., through an IRA, or SEP, or Keogh, or 401(k), or 403(b) plan? Money in tax-deferred retirement plans can grow exponentially compared to money in a regular investment account, because you do not pay taxes on the money deposited or the earnings until you begin to withdraw it.

Further, a number of employers now offer to match your 401(k) plan savings with additional monies kicked in to benefit you. Make certain you are plowing as much of your long-term savings as possible into these highly Foolish vehicles. Remember: Pay yourself first, and you will thank yourself later.

Learn more about the rest of your personal finances
Before you leap headlong into that dramatic first investment, you should at least give some additional thought to other aspects of your financial life, such as any investing for your kids, getting insurance, buying a home, saving for college, building an emergency fund, and buying car.