Chapter 5

Laying Out Your Financial Plans

IN THIS CHAPTER

Knowing what you should do before investing

Understanding how your financial plan translates into your investing plan

Investing is exciting.

Most folks love to pick an investment, put their money into it, and then enjoy seeing it increase in value. Of course, as I discuss in this book, investing isn’t that easy. You can do your homework and make a good decision but then see your well-chosen investment fall in value and test your nerves.

But that’s putting the cart before the horse. Before you make any great, wealth-building investments, you should get your financial house in order. Understanding and implementing some simple personal financial management concepts can pay off big for you in the decades ahead.

In this chapter, I explain what financial housekeeping you should do before you invest, as well as how to translate your overall personal and financial plans into an investment plan.

First Priorities: Paying Off High-Cost Debt and Building a Safety Reserve

Plenty of younger folks have debts to pay and lack an emergency reserve of money for unexpected expenses. High-cost debts, such as on a credit card, can be a major impediment to investing, in particular, and accomplishing your future personal and financial goals, in a broader sense. A high interest rate keeps the debt growing and can cause your debt to spiral out of control, which is why I discuss dealing with this debt as your first priority, just before establishing ...

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