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.

[Art]

I would recommend to take these steps before you start investing:
1. You must have an earning capability.
2. You must be able to save 10% of your savings or simply put
it, pay yourself first.
3. You must investigate the firms or companies that you intend to purchase its stocks.
4. You must believe that before investing your credo will be: " Do not buy the products of companies but buy their ownerships instead."
5. You must diversify your investments.
6. You must invest for the "going-concern-basis" or in other words for a longer periods of time. Basically the the time limit is five years or longer;
7. You must only harvest the fruits and do not cut down the trees. In other words, get only the profits but never sell your original shares of investments.
8. Invest as if you are planting a seed and that one day it will bear fruits for you to harvests.
9. You must invest substantially during bear markets but buy lesser shares during bull periods.
10. When the opportunities are ripe and the par value has risen to a comparative degree sell or dispose your stocks with substantial profits and buy properties and preferably real estate or lands. Buy lands by the acres or hectares and sell them by the square foot.
11. Read as many books or literature about investing. The internet has the widest array of library topics on investments.
12. If you are not literate about business languages and its meaning hire a financial adviser for wise investment prospectives.
13. Invest first if you have the money and spend what's left after investing.
14. Create multiple streams of investments - investments in stocks, bonds, savings, time, money markets, mutual funds, treasury stocks, real estates, cooperatives and insurance companies.
15. Invest your money so that in times of economic down turns you don't have to resort to borrowing money with usurious rates of interest.
16. Do not trust money but put your money in a trust that means you have to invest your money in trust accounts as already aforementioned.
17. You must firmly believe that to spend money is human but to save is divine.
18. You must believe that if you do not save money then the seeds of greatness is not in you.
19. You must believe that investment is the only way where you make your money work for you instead of you working for money.
20. You must realize that money saved is money earned which will afford you a vehicle for investment.
21. You must realize that investment is not a gamble but putting your money for its wise use.
22. You must realize that investments entails relative risks and you must not be affected by it.
23. You must look at investing your money as personnel or employees who will be working for you creating more money for you. Example of this is when you put your money in time deposit after a certain period of time as agreed upon you receive your principal amount and its interest earnings.
24. You must realize that when you invest your money, you live like a lender and not a borrower.
25. You must realize that when you invest or save your money in a bank you become its creditor and the bank becomes the debtor. It's debtor-creditor relationships.
26. When you invest your money the principle of compound interest is in your side instead of against you.
27. When you invest your money you are protecting your future for your love ones, example of this is investing in insurance companies.
28. Investment affords you to have passive income.
29. Investment when diversified affords you to have multiple streams of income.
30. Investment signals your mind that you are abundant and that you have excess liquid assets like cash which enables you to invest in a company.
31. When you invest money it will act as a magnet to attract more money since your money can give more services to other people by using it.
32. When you invest you make your money your slaves working for you unlike when you borrow money, money now becomes your tyrant master since you have to pay interest surcharges to meet your obligations.
33. When you invest your money you are creating a prosperity habit and affirmations to the universe that you are financially abundant as advocated by the law of Attraction.
34. When you invest your money you will become a money magnet.
35. When you invest your money, you are letting money flow in its natural streams that means you are not hoarding it, hence the perspective of creating more wealth.
36. When you invest your money, you follow the concept that the best way to help the poor is to become not one of them.
37. When you invest your money you are following God's instructions to be prosperous in this earth and subdue it.
38. When you invest your money, you are following what the Bible advocates in the Parable of Talents.
39. When you invest your money, you turn out to follow the ways of the ants - save food during the summer for the rainy days to come.
40. When you invest your money, you provide other people the chance to use your money similar to this is when you deposit your money in a bank because the deposited money will then be used for loaning purposes for other people's use.
41. When you invest your money, you increase your asset account, it can be current asset or investment account.
42. When you invest your money, it will afford you the possibility to attain your long life dreams whether it will be a world tour, a vacation or even buying a brand new car or house.
43. When you invest your money you convert it to other forms of account near cash to avoid impulsive buying or theft.
44. When you invest your money, it provides you a way what money wants to be treated for it to be multiplied.
45. When you invest money you are following the way to become a millionaire by simply advocating that no one ever became rich by spending.
46. When you invest your money, you simply follow what the Indian Cherookee Chief once said:" We are the once we have been waiting for." because you are now managing your money instead of allowing other people to manage it for you.
47. When you invest your money it will afford you to follow what John D. Rockefeller Sr. once said: " In life there are only three things you can make - earn all you can, save all you can and give all you can."
48. When you invest your money
you will develop the ability to earn more and spend less in life.
49. When you invest your money, you will be able to live on the excess money left after investment and develop that save mentality.
50. When you invest your money it will enable you to help the poor and the needy in the twilight years of your life.

[Dr. Artfredo C. Abella-Philippines/U.S.A]

I just want to clarify on e-mails made on me as to who is my real name who made 50 comments on steps before you start investing. Please find it hereunder.