” If you have $1,000 in the bank, how would you invest it?” I am often asked this question. My answer to this would have definitely been different before I started learning and participating in the wealth game. Nowadays, when I am asked, I respond with my own questions:
Do you have a Security Fund?
Do you have debt? What kind? How much?
How are you investing in yourself to make more money?
Do you have life insurance?
I ask these questions because I have found that most people are just thinking about how they can make money and not enough about how they can preserve the money they already have. The preservation of your money is equally important as the growth of your money. You may have heard the saying, ” It’s not so much what you make but what you keep.” If you can keep it, you can assign each of those dollars a job to make more money for you.
Go ahead and answer the questions above. After you’re done, I’ve outlined 4 moves you can make today if you have $1,000 in the bank and you are just getting into the wealth game.
Step 1: CREATE A SECURITY FUND
A Security Fund may be referred to as an Emergency Fund or a Rainy Day Fund. I’ve even heard it called a Sinking Fund. I prefer names that are in alignment with a prosperity mindset so I chose to name it a Security Fund. However, you can call it whatever you like. How much you should be putting in this fund depends on your monthly expenses and the time frame you would need to replace your income if you lost it today. Most financial experts recommend 3- 6 months of expenses.
It’s really simple to calculate how much should be in your Security Fund. First, add up your monthly expenses. Then ask yourself, how many months would if take to replace your income if you lost that income source today. If you have a family, you may want to consider adding 3 extra months to that number. Once you have both numbers, multiply them and there you have your answer. For example,
Monthly expenses: $3,700
Time needed to replace income if lost: 6 months
= $3,700 x 6
Total you need to have in your Security Fund = $22,200
Once you’ve done your calculations and allocated the amount you need then move on to Step 2… but before you move on remember this money is not to be used on anything that isn’t an emergency. Do not use it to pay off debt, make investments or pay for a luxuries like a vacation or a new car.
Step 2: PAY OFF HIGH INTEREST CONSUMER DEBT
Consumer debt includes credit cards, student loans, mortgages and auto loans. You may have heard the term good debt and bad debt before. Good debt is when you use debt to acquire an asset and the profits from that asset monthly is able to cover the monthly payments of the debt and you are left in the green. For example you may have a mortgage on a rental property. However, the monthly rental income you receive from your tenants cover that monthly mortgage payment and any other monthly expenses associated with the property. Once you pay the monthly mortgage payment and expenses you made a small profit. That would be considered good debt.
In contrast, bad debt is when you are paying for liabilities. Now, let’s take the same example, except this time the rental income you receive is only covering half the monthly mortgage payment. You now have to come out of pocket every month to cover the other half and the other associated fees. This property is now a liability because it is taking money out of your pocket.
Another example of bad debt is when you pay for luxuries with your credit card, a vacation for example and you don’t pay it off in full before you incur interest. You will continue to pay interest on that expense and before you know it you would have paid double the price! Bad debt is one of the greatest contributors to the erosion of wealth. Paying off your highest interest debts will allow you to have more money to put towards the growth of your wealth.
STEP 3: INVEST IN YOUR GREATEST ASSET …YOU!
You are the only person who has the power to create the life you desire. Therefore you are your greatest asset. If you want to increase your financial IQ and your financial portfolio, you have to search for information and resources that will help you do that. Some resources will be free and some you will have to pay for, but understand that paying for something of value can allow you to expedite the growth of your wealth. When you purchase a book, a course, seminar or coaching don’t look at it as an expense, but rather an investment in one’s self and one’s success.
Benjamin Franklin said, “For the best return on your money, pour your purse into your head.” He had the right idea. Spending money on acquiring specified knowledge is only a waste if you don’t use it. There are no shortage of financial books out there, but I will list a few I feel must be in your library.
MONEY MASTER THE GAME: 7 SIMPLE STEPS TO FINANCIAL FREEDOM by Tony Robbins
In order to create a better quality of life you must always be learning and growing. Think of the areas of your life that need improvement and purchase a book that has valuable information on that area. Some investments will not give you an increase in money necessarily. However, they will help you to create a better quality of life. Growing in areas Relationships and Marriage, Spirituality, Leadership will enrich your life tremendously. Go to My Recommended Booklist to see the books I’ve selected for growth in each areas of life. I update this list regularly so check back once in awhile.
STEP 4: PURCHASE LIFE INSURANCE
I’m not going to get into the debate of whether term life or whole life insurance is better. That’s not what step #4 is about. It’s about making smart decisions with your money. I utilize the Infinite Banking Concept, but it’s really not for everyone. Everyone isn’t in the ideal situation or have the discipline to make this concept work for them. Furthermore, we are only talking about $1000 here, so I would recommend starting with term life insurance if you don’t have any life insurance at all. If you already have life insurance that is awesome!
Living is a choice. Dying is inevitable. If you happen to pass away before you establish a great financial portfolio, at least your loved ones would be able to weather some financial burdens that may arise due to your passing. For example, if you need to be buried or the house needs to be paid off so your family doesn’t lose it. The term life insurance will ensure that the income you would have provided to the household, if you were alive, would still be available to your family depending on the death benefit. Of course there are pros and cons whether you have Term or Whole Life Insurance, so do your due diligence.
Making these 4 moves will put you on the path to creating a strong foundation for your financial future.