Building an emergency fund of at least $500 and ideally 3-6 months of expenses, is a key first step on the path to building multigenerational wealth. But if a person has debt, is it wise to start investing?
This is a judgement call, and it can depend on the kind of debt you have and your tolerance for risk. ’Secured debt,’ with some kind of ‘underlying asset’ like a mortgage on your home, or a car loan, is less risky, and usually has a lower interest rate, so it’s less expensive.
’Unsecured debt,’ like credit cards or student loans, can be a trickier call. If investing money will keep you up at night worrying about the investment, then it’s better to focus on paying down your debts first, starting with the highest interest rate debt first, and managing spending to stop making any new insecured debt.
Also, it’s important to remember that investing takes time, and you should only invest money that you don’t need to spend anytime soon. Imagine that you’re putting it away for 3-5 years at least, and in the case of the Investing Starter Kit, that money shouldn’t be touched until retirement.
Here’s a helpful video from Bank of America’s free program called ‘Better Money Habits,’ that breaks down some personal finance basics:
Ultimately, the decision on whether to pay down all debt first before starting to invest, or beginning to invest your money before being fully debt-free, is an individual decision only you can make. What does your gut tell you?
The goal is your financial freedom.
Let me know in the comments if you have thoughts about this topic? And as always, thanks for reading this!
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