🎧 Listen to this lesson

Prefer audio? Press play to hear this lesson narrated by George. You can read along, pause, and return whenever you like.

1 money foundations.mp3

<aside> <img src="/icons/cash_orange.svg" alt="/icons/cash_orange.svg" width="40px" />

Before you invest a single dollar, your base has to be solid. Investing on a weak base is how people end up selling at the worst moment because they suddenly need cash.

</aside>

The order of operations

  1. Know your numbers. Monthly income after tax, monthly fixed costs, monthly flexible spending. You can't invest what you can't see.
  2. Pay off expensive debt. Credit cards, overdrafts and consumer loans often cost 10 to 25% a year. Paying them off is a guaranteed "return" that the stock market can't promise. Cheap long-term debt like a mortgage is different and usually doesn't need to be paid off first.
  3. Build an emergency fund. 3 to 6 months of essential costs in a savings account you can access quickly. More if your income is irregular (freelancers, business owners). This money is not invested. Its job is to keep you from ever being forced to sell.
  4. Separate money by time horizon. Money you need within about 3 years (a car, a trip, a deposit) does not belong in stocks. Stocks can fall 30% or more and take years to recover.
  5. Invest the rest, regularly. Now you're ready.

How much should you invest?

There is no magic number. A simple starting rule: invest 10 to 20% of your take-home pay, or whatever amount you can keep investing every single month without stress. A small amount you never stop beats a big amount you give up after three months.

A quick exercise: take your monthly income, subtract fixed costs and a realistic amount for living. What is left is your maximum. Pick something below it.

Why starting early matters

Compounding means your returns start earning returns. As a purely illustrative example: $200 a month for 30 years at an average 7% a year grows to roughly $240,000, even though you only put in $72,000. Wait 10 years to start and the same habit ends at roughly $100,000. Real returns vary year to year and are never guaranteed, but time in the market is the one advantage every beginner has.

<aside> <img src="/icons/checkmark-square_orange.svg" alt="/icons/checkmark-square_orange.svg" width="40px" />

Your action steps