Peter Pays Paul

Today, in the United States investing is assumed for those earning a regular salary. We have 401(k)’s, IRAs, brokerage accounts and more. The options for investment abound: stocks, bonds, mutual funds, hedge funds, real estate, businesses, classic cars, etcetera.

Investing is a Luxury

We frequently miss the fact that investing is a luxury. Living in one of the richest nations in the world causes us to be jaded to the realization that the majority of the world lives day to day. They do not have the luxury of saving money. Nor does the majority of the world have the added luxury of choosing the vehicle in which they invest their money.

This is not to say investing is wrong or bad. Investing needs to be treated as a luxury in our thinking and practice. Luxuries come after we have taken care of the necessities of life.

A Plan to Invest

If you are going to begin investing, here is a recommended plan to get there.

1. Live within your means. - If investing is a luxury, it means that you should be making more money than you are spending. It also means that at the end of the month you should have some money left over to save. The best way to do this is to set a monthly budget and stick to it.
2. Reduce consumer debt. - Paying interest on things that depreciate like clothes, cars, televisions, and stereos is the best way to stay broke. It is a glittery road that leads to bankruptcy. Applying any leftover money at the end of the month towards debts is the quickest way to reduce them.
3. Save for a rainy day. - God forbid an unforeseen need arise, however it does occur. Bad things do happen and it is best to be prepared. Most financial experts recommend 3 to 6 months of income in reserve.
4. Assemble a team of professionals. - Having an accountant, an attorney, and a financial planner in your corner can make all the difference in the world. Choose professionals that are also investors. Your team members should have your financial health as their goal.
5. Invest wisely and often. - After paying off consumer debt and saving for a rainy day, invest the leftovers each month. There are many options for investment. Choose an investment vehicle that is understandable and that has a comfortable level of risk. Staying awake each night sweating your investment is not worth it.

What Are Your Dreams?

Where do you want to be in 5 years? 10 years? 20 years? What kind of life do you want for yourself and your family? What do you want to enjoy in retirement?

With those dreams in mind, how will you get there? “Failure to plan is planning to fail”, the saying goes. These steps above can serve as an outline for your plan. There are many nuances and intricacies in each step, far more than can be covered in this article. Dave Ramsey, an author and radio host, has written on these and other topics. His book The Total Money Makeover is a good resource for more information.

-Peter

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