PHASE IV: Save and Invest
Investing is almost the last of the steps in the process
Phase 4 is taking the savings you’ve accumulated and investing in income producing assets.
Controlling spending is critical to financial success
Step 11: Building an Emergency Fund
Limit or eliminate borrowing of any kind. Get and stay out of debt.
Eliminate credit card debt. Practice responsible credit card use. You need only one or two credit cards. Credit cards should be paid off each month. Never carry a balance.
Use ‘Debt Snowball’ or ‘Highest to lowest interest rate’ methods. Both work.
Minimize or eliminate depreciating assets (car, boat)
Step 12: Save
Regular saving is the key to a successful retirement. Do it early and often, and it can be relatively painless. Wait until the last minute, and you will be in trouble.
Set aside a percentage from each paycheck to save for future needs or desires like a new (used) car, further education, vacations, etc.
Create an artificial environment of scarcity by “paying yourself first” (i.e., automatically withdraw money from your paycheck and checking account to fund investment accounts).
Step 13: Invest savings aggressively in appreciating assets
An asset should provide low risk, positive cash flow. The best assets (most passive) do this with little to no work from you.
1. Stocks & bonds.
2. Real estate / rental property.
3. Small business.
Step 14: Suppress your realized income
Divert earned income to pre-tax savings accounts, and grow your unrealized income and net worth by investing after-tax money in assets that appreciate either tax-free or tax-deferred – particularly a Roth IRA and real estate whenever possible.
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