There are many, many people in the world that are more than willing to remove any extra money you have that you are not using at this moment. A majority of these are not sharks and are quite legitimate. For example, Ford, Honda, etc. are more than willing to convince you that you need a brand new SUV (Sports Utility Vehicle) to replace your 5 year old Taurus or Accord. Of these, 95% never actually get off road and yet you pay several thousand dollars extra for the four-wheel drive components. You pay extra in gas to carry the extra weight for the life of the SUV and finally you have higher maintenance costs due to the increased complexity of the SUV.
You thought I was going to tell how not to buy heating oil futures from slick salespeople? Well, some of the most obvious bad investments are rather innocent and are right in front of you. The Number ONE bad investment is buying something on a credit card where you can't pay the item off at the end of the month. If your "emergencies" keep adding up where you "just have to buy something" that you can't pay off in a few months then you need to reexamine your lifestyle and lower your spending or get another job. BEFORE you start making investments, you MUST learn to live within your means and pay off all your credit card debt. The ONLY exception to this rule is if your company gives matching money for 401K investments. Then I would allow investing in mutual funds while maintaining outstanding credit card debt.
OK, so now you are not buying a brand new SUV that you don't need and you have your credit cards and student loans all paid off (or nearly so). How do you start investing? The general rule is to fully fund your tax deferred investments first. That means fund your 401K plan at work (or SEP) and then fund your IRA. The 401K has an immediate benefit of lowering your overall tax bill (deferring taxation until you retire and take the money out) allowing your investments to grow without taxes lowering the rate of return. 401K's also often have employer matching which greatly enhances return.
Your first investment should be in a simple NO LOAD mutual fund that has overall expenses no higher than 1%. Many funds are sold by salesmen who get a nice 6% or so of your money just for getting you to invest in their fund. With no-loads, you get to keep this money and usually get better overall returns. Investing in individual stocks is for sophisticated investors (due to much higher risk) and should only be at a 4% of overall portfolio value even if they do invest.
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