Take These Steps before You Start Investing

Here are three great tips from the wonderful book The Bogleheads' Guide to Investing (I LOVED the book -- see my rating for details) on the steps you should take before investing:

1. Graduate from the paycheck mentality to the net worth mentality.

2. Pay off credit card and high-interest debts.

3. Establish an emergency fund.

See why I love this book? ;-)

Here are my comments on each of the above:

1. I look at this issue as making two key points. First, you need to spend less than you earn. Second, you must realize that wealth is what you save, not what you spend. This starts with knowing, measuring and tracking your net worth. Want some tips of how to do this? See How to Compute Your Net Worth and Check Your Financial Progress.

2. Paying off credit cards and other high-interest debts is money in the bank. It's like earning a 20% investment return -- which is pretty good, after all.

3. If you don't have an emergency fund, you'll need to charge/borrow when financial emergencies arise (which they always do), which puts you back into a hole. If you don't have one, you need to get an emergency fund now.

Comments

[Trent]

Bogleheads sounds like a great book... I plan on reviewing it myself once I get to the end of the library wait-list.