Build an emergency fund
The goal for an emergency fund is to save enough money to cover your expenses for six to nine months. With this in place, you are prepared in the event you lose a job or come face-to-face with unexpected costs from home or car repairs or medical emergencies.
Make building an emergency fund a priority. It's a smart way to ease stress or concerns over some of life's unknown events. This is like insurance for your budget.
Is your debt productive or unproductive?
Unproductive debt is debt that doesn’t add to your income. It’s not for investment and it is typically used to purchase items that depreciate in value over time. It’s best to keep unproductive debt low.
Examples of unproductive debt:
- other lifestyle items
Productive debt on the other hand, generates income. It works to help you build wealth by purchasing assets which typically appreciate in value and sometimes produce income that pays both the principle and interest on a loan.
Examples of productive debt:
- rental properties
- fine art
Pay down high interest debt
If your money is going towards excessive credit card debt or private loans, make a plan to figure out how and when you might pay those down. In the meantime, make smart decisions about how to keep investment opportunities in balance.
Having a full emergency fund and being debt free are not prerequisites to investing. But, knowing where your money is going helps you plan how to invest wisely while you take care of other responsibilities.
Take in the insights from the opening chapter to set you up for investing like a champ.