- Pay yourself first from every paycheck. One should do this before paying the rent or mortgage, utilities, credit card payments, student loans and living expenses. If one can't pay yourself first and pay all the other bills, start reducing one's costs in the other areas. It's as simple as that. Or so I thought.
After seven month of blogging and reading other's posts, I realized that I was making an assumption that wasn't clear to everyone. Hence, I've added#2.
- Don't touch funds from #1. Yes that's right. Once you pay yourself, consider that money gone. It should be not different than paying one's rent. Once paid the money is no longer available.
Breaking this rule will happen, but it should be the exception and not the rule. Regularly raiding this account to fund bills and livings expenses means that one IS NOT following this strategy correctly.
- Invest and grow the funds. Of course, one can't let the funds just sit. Inflation would eat away at it. The big questions are in what to invest, and how much risk to take. Here are some simple answers to the questions.
The Really, Reallies - This article talks about your choices: CDs, Stocks, or Real Estate. I personally like CDs and Stocks.
Investing 101 - Managing Risk Successfully - Investing can be scary. Instead of fearing investing, learn to manage the risk associated with investing. There are several types of risk and this post explains how to minimize negative impacts for these risks.
In my personal portfolio, my current allocation among stocks/fixed income/cash is 34%/28%/38%. As I have noted before, I have a lower risk tolerance profile and use a strategy that preserves my principal. In my company retirement account, my allocation is about 75% company stock and 25% cash.
Photo Credit: morgueFile.com, Michael Connors
This is not financial advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC