As 2014 comes to an end, we share some timely tips for those who intend to make financial New Year’s resolutions. Tom has some words of wisdom that you should keep in mind: Don’t play the stock market with the rent! He elaborates on the meaning of this in our weekly video.
What Tom means by his advice to avoid playing the stock market with the rent, is that being ambitious about saving is good, but doing so at the expense of other critical financial safety nets might be a mistake. We’ve seen people increase their retirement contributions, only to withdraw those savings because of an unforeseen event.
You can think of your financial situation in terms of buckets to simplify things.
Bucket 1 – The Emergency Fund
Accidents happen and they tend to cost money. A new car transmission can cost $2,500, and a trip to the emergency room can cost even more. Be sure to have an emergency fund in place before designating money for investing.
Bucket 2 – Your “Sleep Easy” Money
Some people enjoy having a certain amount of money in the bank at all times. We like to refer to this as your “sleep easy” money. Whether it’s $5,000 or $50,000, your number is appropriate and should be in that savings account helping you sleep at night.
Bucket 3 – Investing
After you’ve earmarked your emergency fund and “sleep easy” money, the rest can be allocated for long term growth.
We thought this would be a nice reminder for any investor looking to make financial New Year’s resolutions in 2015. Remember, don’t play the stock market with the rent!
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