I said it before, and I will say it again; your journey to financial freedom requires a strategy. You can’t just hope and pray that you will wake up a millionaire one day. You have to plan. Your plan must be flexible. There will be bumps in the road, but it’s important always to look at the big picture and not focus too much on what you’re not able to do.
So how do you go about navigating this?
There is so much to do, and sometimes we don’t know where to start. What I don’t want you to do is do nothing. If it’s overwhelming, or you need a little help getting started, use this as a guide.
Should I save for emergencies or start investing?
Emergency saving comes first! I know time is your best friend when it comes to investing, but investing is a long-term strategy.
You need to be able to cover your short-term needs if something unexpected was to happen. It’s almost a guarantee that life will surprise with very little to no notice. Without an emergency fund, you are more likely to go into debt (no one wants that when trying to be financially free).
Should I wait until I finish paying off debt to start investing?
It depends on what type of debt you have and how much it costs you. Also, it doesn’t have to be all or nothing. You can do both at the same time. BUT, pay off credit card debt before you start investing. WHY? Because no investment will give you a return equal to what you are paying in interest. NONE! For other types of debt, there is no right or wrong way. If you think you can earn more investing than what the debt is costing, then pay off debt slowly while investing at the same time. For me, if I have a double-digit interest on the debt, then I pay it off first. Things like student loans or mortgages usually don’t have a double-digit interest.
Should I save for down payment on a house or start contributing to my retirement account?
Retirement. It might seem very far off, especially if you are young, but it’s never too early to start investing for your retirement. Compound interest has no match when it comes to growing your investment. You can’t make up what compound interest would do with additional contributions.
How about college saving for kids versus retirement contribution, what comes first?
I’m a mom, I understand the desire to want help out our kids, BUT I also believe that I should not burden my kid(s) with the responsibility of taking care of me in my old age. I’m also from Africa, and taking care of elderly parents is considered normal. Unfortunately, in the USA, the cost of living is so high that I can’t imagine I will be doing my kid(s) a favor by not investing for my retirement. So retirement comes before college saving for kids.
Also (as a side note), there are few other things to consider:
(1) you can borrow for college, but you can’t borrow for retirement, (2) your kids might not go to college, (3) your kids might not be able (or willing) to help you. Your kids are NOT a retirement strategy.
The order in which you tackle your to-do list does matter when it comes to building wealth.
- You need an emergency fund to avoid going into debt.
- You need to pay off high-interest debt first before investing.
- You need to start investing as early as possible to benefit from the magic of compound interest.
- You need to get rid of all debts (the sooner, the better).
- You need to invest consistently.
BUT MOST IMPORTANT, you need to start somewhere. I’d rather have you work on these steps in random order than not working at them at all.
“Rich people believe ‘I create my life.’ Poor people believe ‘Life happens to me.’” T. Harv
