Before one ever starts investing, one needs to put his financial house in order. To
start investing while deep in debt will only result in disaster. One
will never be able to overcome the 18% rates charged by credit cards.
Likewise, not having cash on hand to handle life’s little calamities
will result in needing to sell stocks and pay capital gain and
commissions each time a car breaks down or the furnace goes.
Investing in individual stocks without putting away other funds for
retirement is also not wise.
Here are the things that must be done
before you every buy you first shares of stock:
Save up an emergency fund of 3-6 months worth of expenses. This will allow you to fix
the car without needing to sell stocks or pull out the credit card.
Pay off all credit cards and cut them up. Really. Start paying extra on the smallest
balance and then as each is paid, roll the extra money saved from
not having payments into the next largest debt.
Pay off student loans and pay off or sell cars with large balances and buy less
expensive ones for cash.
Fund your retirement accounts with 15% of your take-home pay in growth stock mutual funds
in tax protected accounts. This will ensure you have funds for
retirements even if you have terrible luck in stock picking.
If you have a home loan, refinance into a 15 year fixed rate loan. This will mean that
your house will actually be paid off in 15 years.
Once you have accomplished the above, you are ready to start investing and growing
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.