Investing For Dummies®, 5th Edition

Chapter 3. Getting Your House in Order before You Invest

In This Chapter

• Saving money for emergencies

• Managing your debt

• Setting financial goals

• Funding retirement and college accounts

• Understanding tax issues

• Exploring diversification strategies

Before you make any great, wealth-building investments, I recommend that you get your financial house in order. The truth is that understanding and implementing some simple personal financial management concepts will pay off big for you in the decades ahead.

You want to know how to earn healthy returns on your investments without getting clobbered, right? Who doesn't? Although you generally must accept greater risk to have the potential for earning higher returns (see Chapter 2), in this chapter I tell you about some free lunches in the world of investing. You have a right to be skeptical about free lunches — but this chapter points out some easy-to-tap opportunities for managing your money you likely have overlooked.

Establishing an Emergency Reserve

You never know what life will bring, so it makes good financial sense to have a readily accessible reserve of cash to meet unexpected expenses. If you have a sister who works on Wall Street as an investment banker or a wealthy and understanding parent, you can use them as your emergency reserve. (Although you should ask them how they feel about that before you count on receiving funding from them!) If not, the ball's in your court to establish a reserve.

Warning

Should you invest emergency money in stocks? ...