In an entitled society where many people have been taught that they can have everything they want instead of learning to prioritize, it’s not surprising that so many individuals and families struggle with finances. This is due, in part, to the order in which they play the financial games they are engaged in. Are you one of those people who is acting out of order? Are you bored with having to do the “financial basics” first and would rather experiment with more sophisticated and risky games before you have taken care of the fundamentals? Think about it.
If you are tempted, for instance, to dabble in the stock market before getting out of debt, you may have a serious problem with not knowing how to do “first things first.” Money Mastery Principle 5 teaches the importance of knowing the rules. Based on these rules it is always a good idea for individuals and families to to do the following in the order prescribed:
- Consider getting an education or learning a skilled trade.
- Secure vocational income.
- Avoid getting into debt (Money Mastery Principle 4).
- Buy basic life and disability insurance.
- Build emergency and emotional savings (Money Mastery Principles 2 and 3).
- Purchase a house.
- Minimize taxes (Money Mastery Principle 9).
Invest Surplus Money
- Consider investing in guaranteed investments such as CDs or Money Market accounts.
- Consider investing in low-risk options such as mutual funds.
- Consider investing in individual stocks.
As you play each of these financial games in the order that puts “first things first” you will naturally be led to an understanding of the rules governing the next game. Each step you take will build confidence until you understand how to play even the most risky financial games and have the economic wherewithal to afford to play them. Because every financial game you play comes with a certain amount of risk, knowing the rules means understanding what those risks are. Some financial decisios are less risky than others; nevertheless, each one can be a risk.
So many times vital savings are put in jeopardy due to high-risk investments. In general, vital savings should be invested in low-risk opportunities and disposable savings be set aside for higher-risk programs. You can make more money the higher the risk you take, obviously — but you can also lose more. That’s why a person with debt should not be investing in high-risk opportunities because they are not in a position to lose money. Too many people, because they do not take the time to know the rules, try to invest their way out of debt. This is unwise. Remember, debt interest is unrelenting and it’s not a good idea to borrow money in order to try to get out of debt!
Investment returns for the indebted disappear like smoke.