“If I only had an hour to chop down a tree, I would spend the first 45 minutes sharpening my axe.” – Abraham Lincoln.
So when do you know you’re ready to invest? Well, it depends…
Make a Plan
One of the first things to do before investing is having a plan. As you make your plan, consider the Four Pillars of Financial Freedom. And as an example, you can utilize the HGB’s scaffolding to make your own plan.
HGB’s Unconventional Financial Freedom Plan
Emergency Fund
If you’re single, have no responsibilities, and live in your parent’s basement, a $500 emergency fund may be all you need. But the more stuff you have…house, car(s), boats, wife, ex-wife, kids, dogs, refrigerator, washer & dryer, cell phone, etc., the more you might want to hold in your emergency fund.
Now if your cash flow is limited and based, say, on social security and a small portfolio…and you own your house and have to keep up appearances, you may need a year of living expenses to smooth out the ride of a bumpy market. Or maybe even 3 years of cash on hand! It’s whatever makes you feel comfortable. Just understand the more cash you have, the less of your green dudes that are at work.
Or maybe you fall somewhere in the middle? Personal Capital,* which can help keep your financial life organized, recommends holding 3-6 months of living expenses liquid. That’s a good rule of thumb.
Now, an Emergency Fund should be used for “emergencies,” whatever that means to you. I use it for unforeseen expenses. And after I use some of the Emergency Fund, I replenish it as able. I hold a couple thousand dollars in cash, easily accessible, and use it when needed, and then replenish it.
CRUSH DEBT
There’s all sorts of information on how to do this. My number one Rule is: Don’t buy stuff you cannot afford…
GET RID OF DEBT
CUT CONSUMER LIFE COSTS IN HALF
- Don’t buy stuff you cannot afford
- Live closer to work
- Pay cash for cars & don’t buy stupid ones
- Ride a bike wherever you can
- Cancel your TV service
- Stop wasting money eating out
- Rent more / Own less
- Give your kids the opportunity for greatness without being pampered
- Lose the overpriced cell phones
- Use your own body to get things done
- Love what you have or get rid of it (sell, donate, trash)
Build Cash Reserve
I like simple back up plans. Drawing from experiences of being in tight situations overseas, I organize and plan my financial life using the same system that I did down range doing the business.
Invest in Cash Flow Producing Assets
So, what to invest in? Well, I like assets that produce a cash flow. Invest in yourself. Start a Business. Invest in Real Estate. But what I talk mostly about in this blog is a portfolio. Of equities. But what stocks should you buy? Buy the whole market, and ride it!
- Build the Base
- Old Man Money
- Cover the Gap
Passive Income Pays Living Expenses
Financial Freedom is the point in your life where you no longer have to work – where savings and investments cover living expenses.
When you have 25 times your cost of living saved up and working for you, you can live off that forever, ever
Based on the 4% Rule. Take out no more than 4% of your principle every year and never run out of money.
This is a new way to think about money… where “Your financial decisions – past & present – ensure your future freedom.”
Keep reading, and I hope to impart some Unconventional Financial Education and Skills necessary to ensure your Financial Freedom.
*Personal Capital has a free service to organize and see your financial mess… I mean situation… all in one place. Use the link provided, I get a the same kickback as you.
All written content on this site is for information purposes only. Opinions expressed herein are solely those of HGB, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by HGB as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an investment advisor, accountant, or legal counsel prior to implementation.