Pensions are a thing of the past. Social security is questionable at best. Why would a Certified Financial Planner™ tell you to wait on investing in a 401(k)?
There’s a simple answer . . . .
Many Americans are trying to do everything at once, and in doing so, they are spreading themselves to thin and not taking care of their immediate financial needs.
Build a Solid Foundation First
Jesus once told a story about a wise man who built his house on the rock:
Therefore everyone who hears these words of mine and puts them into practice is like a wise man who built his house on the rock. The rain came down, the streams rose, and the winds blew and beat against that house; yet it did not fall, because it had its foundation on the rock. But everyone who hears these words of mine and does not put them into practice is like a foolish man who built his house on sand. The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash. – Matthew 7:24-27 NIV
The foundation is a critical component to any structure because it helps the structure stand the test of time. Though many storms may come, the structure stands firm because it is firmly planted in place.
The same is true of our financial house. If you want your financial life to stand the test of time, you’re going to have to start with a rock-solid foundation.
Here’s another example. Colton, my son, absolutely loved Legos. When he was younger, he used to build lego towers as high as he could, but found that after the towers reached a certain height, they would come crashing to the ground. Through trial and error, Colton soon learned that if he built a wider base of Legos for his tower, he could build them up much higher than previously accomplished.
The lesson here is simple and obvious. The more attention you give to your financial foundation, the better positioned you’ll be to build your financial potential.
Before you contribute to your 401(k) – or any other investment for that matter – make sure you accomplish preliminary goals so that you don’t lose your financial balance when you put money into real estate or the stock market.
5 Critical Steps Before You Invest
Before you even think about investing, make sure you’ve worked your way through the Foundation Phase. Let’s take a quick look at the steps you’ll need to take before you start contributing toward investments:
1. Create a Budget and Save $1,000 Cash
You’re going to need to create a working budget – especially before you start investing. How else will you determine the right amount to put into your retirement accounts?
And don’t forget to save up $1,000 in cash for emergencies. That’s right, you won’t make any money off of this $1,000, but at least you’ll have money readily available when the unexpected strikes!
2. Get Appropriate Insurance Policies
An emergency fund will only get you so far – even once you have a fully-funded emergency fund. Look into getting homeowners/renters insurance, auto insurance, life insurance, health insurance, disability insurance, and umbrella insurance. Pick the policies that best apply to your life.
3. Personalize Your Estate Plan
You’re not done yet! Make sure you put in place a living will and a living trust. Should you pass away, you’re going to want your assets to be given to the right people and causes. Don’t let the state determine this for you!
4. Pay Off All Consumer Debt
Say goodbye to your non-mortgage debt. Yes, that means every debt except for your mortgage. It may take you some time to work through your debt, but doing so will free up a lot of money you can use later to put toward your investments.
5. Save 3 to 6 Months of Expenses in an Emergency Fund
After you’ve paid off all your consumer debt, it’s time to build up three to six months of living expenses in a savings or money market account.
If you have yet to accomplish some of these financial goals, it’s time to press “pause” on your investment contributions until you have completed them. It might take you less than a month to accomplish these goals or it might take you five years – when you finish depends on where you’re starting and the caliber of your focused intensity.
Society has it wrong. Invest in the right timing so that you aren’t subject to the storms of life that will come your way. Build on a solid foundation and you’ll be so thankful you followed a step-by-step plan.
Ready, set, build your foundation!
Are you investing a little too early? Do you have questions regarding this process? Leave a comment!