1. You have paid off all your high interest debt. Net worth is calculated by subtracting the sum of all your assets against the sum of all your debts and liabilities. When you consider it this way, it becomes clear why paying off high interest debt should always be step one. Making payments on a loan with 8% annual interest does just as much for your net worth as earning an 8% return on an investment would.
2. You have a real net income. Having a high income means little if it is quickly eaten away by financial obligations. It is important to ensure that the money you are investing is not needed for other purposes.
3. You have established a solid emergency fund in cash. The unexpected happens — and when it does, you need liquid savings to deal with emergencies as quickly and effectively as possible. This is why putting away a decent amount of cash is a must, and should be done before investing in non-liquid assets.
4. You have set concrete goals for your finances and for your life, and discussed them with your family. Knowing your goals will help guide your investments: some people may wish to take a more aggressive approach to investment, for example, even if this means a bit more risk — while others are perfectly content to take a more stable and conservative path to building wealth.