Principle 8

Make Sure You're Ready

Just when you thought you were ready for take-off, there’s one more checklist to go over. Before putting any money in the stock market, your overall finances should be in order and your day-to-day cash flow running smoothly.

Before you start investing, we strongly recommend that you:

  • SAVE
    It's crucial to have money set aside for the various "unexpected" expenses all of us really should expect. Having three to six months' worth of essential living expenses in an emergency fund provides peace of mind and helps ensure you won't have to cash out an investment at an inopportune time.
     
  • GET OUT OF DEBT
    We're fans of getting out of debt, with the possible exception of carrying a reasonable mortgage (one that requires no more than 25% of your monthly gross income for the combination of your mortgage, property taxes, and homeowner’s insurance). If you have a balance on a credit card that charging 14% interest (APR), then every dollar you devote to paying off that debt is effectively getting a guaranteed 14% annual return! Once you stop compound interest from working against you, it's time to get it working for you.