“A bird in the hand is worth two in the bush” – International mantra
If we think about money as a tool and investing as a game then we have to learn how to use these tools in our favor, and how to play the game towards a win. This rolls right into our first rule of money:
1.) The House Always Wins.
Did you know many insurance companies, investment firms, real estate brokerages, and other financial services professionals are for-profit? This means their goal is to make more money than they pay out. Think about that.
Let’s use Tim as an example. Tim is a licensed insurance agent and a financial advisor. His job is to sell you insurance that you both hope you never use, and to sell you investment options that he can’t legally guarantee you any return on. So what do you do? Rule number two:
2.) If you don’t have a return of your money you can’t worry about a return on your money.
Investing is gambling, plain and simple. Before you invest in anything you probably need to eliminate your debt. This is because you are usually charged any stated interest on your debt but you aren’t usually guaranteed a return on your investments. Again, a bird in the hand is worth two in the bush.
Example (hypothetical): Let’s say you owe $1,000 in credit card debt with a 12.99% APR (Annual Percentage Rate) and you are considering investing $1,000 into a mutual fund that has averaged 24% return year-to-date. If you pay $100/month you could potentially pay off that debt in less than a year. Unfortunately if you invest $1,000 into a mutual fund you could lose all your money, or it might simply not grow, all while you’re probably incurring more debt through interest and fees on your credit card debt. Now for Rule number three:
3.) Cash is King.
Plain and Simple. Equity isn’t cash. Stock value isn’t cash. A life insurance policy isn’t cash. Only cash is cash! If you want to use your equity from your home you probably either have to take out a loan (debt) or you have to sell your home. Same with stocks. Basic term life insurance only pays out if you die, and suicide is usually excluded so stick around (and, truly, we like you being here 🙂
- Pay off your debts
- use credit cards to build credit and earn points, pay them off monthly
- Work hard and smart
- Save your money
- Invest conservatively
*Investment consideration: Permanent Life Insurance. Some policies come with cash accounts where you can have a life insurance policy with an investment vehicle, and many are triple-tax advantaged meaning you earn money tax-free, can take money out tax-free, and the policy pays out tax-free when you pass away. Speak with a licensed professional to see what you can qualify for!
Now take another look at your budget and consider these folks for additional help getting back on track: