Investments and other Priorities
So you’ve reached a point in your life where you don’t want to live paycheck to paycheck but the constant flow of bills keeps you from being able to invest your money. Contrary to common belief, there are methods that can be put into practice that will allow you to reconfigure your finances to do so. The first step is to focus on paying off your high interest debts. It sounds obvious but think about it: The type of interest commonly charged by credit card companies will more than offset any gains made by investment interest. While having money invested in assets such as stocks makes good financial sense normally, it is often wise to liquidate stocks or even drain your savings account in effort to wipe out high interest debt. Debts such as student loans and your mortgage are a different story entirely as the interest can be written off. Liquidate stocks and savings to pay off high interest debt only.
Once the high interest debts are wiped out, investing is a feasible option again. A good place to start is by putting money into a 401(K) plan which allows a worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. Individual Retirement Accounts (IRAs) are another sensible investment idea. Contributions into the IRA are often tax-deductible and all transactions and earnings within the IRA have no tax impact. Only withdrawals at retirement are taxed as income.
The bottom line is that high interest debt can destroy efforts of investing. Once the high interest creditors are paid off, retirement should be the next priority. Only after setting up a retirement plan should you begin to invest money in more short-term assets such as stocks, bonds, and mutual funds.
