Many people get caught in the trap of wanting to do things out of order when it comes to finances. They are tempted to invest their way out of debt, for example, rather than getting out of debt first, then investing the interest money they save by being out of debt to make more. Knowing the rules of the financial games you are playing suggest that you must do “first things first.”
Here’s an idea of how to apply financial principles, step-by-step, and in the right order:
- Consider getting an education or learning a skilled trade.
- Secure vocational income.
- Avoid getting into debt; if you are in debt, get out of it.
- Buy basic life and disability insurance (don’t wait to buy life insurance until you are older, do it now while it is still affordable and can be used to fund retirement later in life).
- Build emergency and emotional savings.
- Purchase a house.
- Minimize taxes
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 real estate.
- Consider investing in individual stocks.
As you play each of these financial games in the order that is best for you, 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 we play comes with a certain amount of risk, knowing the rules means understanding what thos risks are. Some financial decisions are less risky than others; nevertheless, each one can be a gample. Don’t put vital money in jeopardy due to high-risk investments you cannot afford to lose (and this includes bailing out adult children with sacred retirement money you will not have the time or energy to recoup should those children never pay you back).
Be wise and always do “first things first” when it comes to finances.