Just In Case

So I’m just gonna say it – I’m a really big wuss when it comes to personal finance.

Some of my friends get a big kick by bragging about how they lose like thousands of dollars every day on their own accounts. I totally get it. Hell, I’ve been there before. I used to watch the futures and forex markets all the time, throwing my dad’s money down and watching with nail-biting intensity, mentally willing those little candlestick charts to go in the direction I wanted, as if I could control the markets if I just concentrated hard enough.

Some of my other friends take their entire life savings and throw them into commercial properties, apartment-flipping, businesses, and art. It’s a helluva sexy isn’t it? Like it could totally be the plot of one of those rags-to-riches movies. (Raspy-voiced narrator: “He started with nothing. Life was tough on the streets. But one man would overcome the odds, take all the risk… and emerge a winner” Cue: inspiring music)

Some people view investing with a “go hard or go home” philosophy – by throwing everything into it. But just because you did a heroic Hail Mary pass doesn’t mean that the market, or your investments, are going to romantically work out for you in the end. If you throw your entire weight behind one, glorious, inspiring, guns-blaring Blitzkrieg, you’re going to be caught with nowhere to run if it doesn’t work out for you.

I’m all for investing, but let’s be smart about it. First, I’d recommend building a hugeass emergency fund. Like 6 months of your income would be good. A year’s worth would be better, but not necessary if you’re young since it’s probably not gonna be that hard for you to find another job if you lose yours. But yeah, there’s nothing more reassuring than having a cool pile of cash sitting in your bank account.Totally baller.

One more reason why having an emergency fund is awesome – it helps you to keep a cool head. And having a cool head is absolutely critical to your success in investing. Here’s a fun fact: the number one reason why most people don’t succeed in investing is because they care too much about it. When the market tanks, most people panic and sell their holdings, which is almost always the wrong decision to make. With an emergency fund, you’re not dependent on your investments to pay your bills, so you won’t go making stupid decisions with your investments.

Secondly, make sure your savings are covered. If you’re planning on buying a house, or getting married, or having a kid, save for those and keep them separate from your investments. Investments, by nature, involve a certain amount of risk, and depending on what you invest in, you don’t want your kids’ college fund to disappear when the stock market takes a nosedive. I have a separate long-term savings account that I contribute towards every month, and I never, ever touch that, not even to buy more stocks.

Next, split your salary and work towards building your emergency funds, your savings, and contributing towards your investments. Personally, I concentrated on building up 6 months’ worth of my salary for my emergency fund first. With that done, I could focus on allocating my money purely towards savings, investments, and expenses.

Lastly, if your investments are relatively low-cost like stocks or bonds, I’d recommend using strategies like dollar-cost averaging to diversify your risk over time.

That’s it! No sexy strategies, no Hail Mary passes. Just smart, common-sense investing, which, in all likelihood, will let you come out ahead in the end.