When To Start Investing?

I think that every household should have 2-3 months in expenses covered before they even begin thinking about investing. After all, when you buy a stock, you should be intending to hold it for the long-term. However, if you are short on cash to meet everyday expenses, you might have to sell some of your stock to meet your everyday needs. This is not a good situation.

Generally speaking, the odds are decent that the time you need to have money could also be a time when your stocks aren't performing well. Think about it--stocks go down when there is a recession because companies aren't making as much money. Do you think that you're more likely to need money during a recession or during times of economic expansion? Most likely, during a recession. If you have to sell your stocks at this time, you'll most likely have to take a 10-30% loss, and this is not a good way to live.

A much better approach would be to make sure that you have enough liquidity on hand. Lehman Brothers, the legendary Wall Street firm, was worth billions upon billions of dollars, but they went bankrupt in the fall of 2008 because they had tied up too much of their money and didn't have enough cash to meet everyday expenses. And the same could happen to you.

Get in the habit of regularly setting aside $50-$100 a month for an emergency fund, and quickly replenish any funds that you have to take out to meet a short-term need. If you get in the habit of regularly putting aside money, you will not have to jeopardize your long-term fiscal health. Having to put $1000s of dollars on your credit card is the surest way to shoot yourself in the foot, and you will end up paying 10%+ on your debt. You can't get ahead making these kinds of decisions. Focus on having enough cash on hand, even if that means scaling back your lifestyle, and you'll be surprised by how many of your problems will disappear. 

What To Do After Bankruptcy

Whenever an individual or a couple declares bankruptcy, they often feel miserable and have no idea where to begin their rehabilitation. But of course, there is light at the end of the tunnel, even if it's not apparent at the time. The smartest thing you can possibly do in your recovery from bankruptcy is to begin to build a cash reserve to the best of your ability. Hopefully, you can scrounge out $300-400 off the bat, and then add $50 per paycheck to the reserve, so your safety cushion can grow over time. Credit card companies and other lenders aren't going to be doing you any favors--your odds of getting favorable credit terms after filing bankruptcy are about as likely as the Cubs winning the World Series this year--I wouldn't bet on it. 

The smartest thing you can do is get in the habit of making your purchases with cash as you build up a slowly growing emergency fund. If you want to rebuild your credit score, the best thing you can do is use prepaid debit cards. There is no way that you should be applying for a credit card at this point in your life--after all, it is most likely that the irresponsible use of a credit card played a role in leading you to bankruptcy. Instead of focusing on getting back on the credit card game, you should try and establish footing by building cash reserves and increasing your liquidity. If you can get in the habit of having a little bit more cash on hand each month than you had the previous month, you're going to position yourself to do well in the long run. 

Eliminate Credit Card Debt put out a wortwhile piece on the topic, and the consensus disagrees from mine, but I still recommend it as a read. Be sure to check it out by clicking here: http://eliminate-credit-card-debt.us/click-here-to-help-and-is-now-out-of-debt-2-753.htm . 

What Lowers Your Credit Score

As important as it is to go over and repeat the wise decisions that lead to establishing a credit history and building your credit score, it's also important to remember the two dumbest things you can do to lower your credit score. The first one ought to go without saying, but it bears repeating--make your payments! In a perfect world, you will have $10,000 of revolving credit access each month, only spend $1,000 or less on your credit card each month, and then pay it off promptly when the bill arrives. But unfortunately, this is a far-off dream for too many people. Life happens, and it's easy to let debts rack up when unexpected expenses enter your life. But I cannot stress how important it is to regularly be making payments on your card. Nothing, with the exception of bankruptcy, can quickly wreak havoc on your credit-worthiness reputation like not making payments on your credit card. The only thing faster than a light year is the amount of time it takes a credit card company to report to an agency that you missed a payment.

The other dumb thing you can do is acquire a hodge podge of credit cards from a bunch of different companies--all of which you use--and then make minimum payments on. Not only does this cripple you financially, ensuring that you ship off a portion of your hard-earned wealth to the credit agencies each month, but it also lowers your credit scores. Credit-card companies don't like to see you putting $1,000 on that Kitty Litter card, that Clock Magic account, or whatever other odd-ball account you create. But these are just two of the biggest errors you can make. If you want to check out a great article on the types of things that can lower your credit score, be sure to check out this post by the guys over at One Money Design by clicking here: http://www.onemoneydesign.com/what-can-affect-your-credit-score/ .

The Slippery Slope of Debt

Philip over at Deliver Away Debt recently put out a great post about the slippery slope of debt in cluttering your life with unnecessary credit card payments. After all, every dollar you spend on credit today places a claim on your future earnings. Instead of shipping off a $300 a month credit card payment to Capital One, wouldn't you rather be investing $300 a month in Berkshire Hathaway? All it takes is a couple of boneheaded purchases on a credit card with a 14-25% interest rate to put you in an unfavorable situation. And as the pile of debt mounts, it's easy to develop the mindset of 'this little purchase won't make a difference' as your debt gradually increases. As Charlie Munger, Warren Buffett's right hand man once said, 'No one gets ahead paying 18% interest.' And I couldn't agree with Mr. Munger any more. If you find yourself accumulating large debts, the most important thing to do is stop the bleeding--cut up the cards, get your spending under budget, and then throw as much money at paying off your debts as possible without putting yourself in a financially vulnerable position. Be sure to check out Philip's tale of his journey in overcoming this type of experience by visiting his link here: http://deliverawaydebt.com/debt-elimination/how-i-delivered-away-my-debt/

Debit Cards, Credit Cards, and Prepaid Cards

I'm from the Dave Ramsey school of thought on credit cards. Despite the rewards and promises they may offer, you are most likely better off in the long haul avoiding them. My attitude towards credit cards are that they are a fire you don't need to play with. Sure, if you can pay them off in full each month, you can gain rewards in the range of 1-3% of your total expenditures. Not bad, especially if you were going to spend that money anyway. But what has always made me uncomfortable about credit cards is the fact that all it takes is one missed payment to completely skewer your credit rating and undo any benefits that you may receive. At least with debit cards, you are working with money that is already sitting in your account, so hopefully the amount of money in your account will act as an automatic buffer to prevent you from recklessly racking up debt. If you have to use plastic, my favorite method is a prepaid card. I personally own three different prepaid cards--one I use for transportation purchases, one for food purchases, and another for emergencies. That way, I can have $300-$500 sitting on these cards that I have already put my own money into, and I can use them when I really need them, instead of on a mere whimsical expense. Ron over at The Wisdom Journal recently wrote a great article on this subject, so be sure to check out his website by clicking here: http://www.thewisdomjournal.com/Blog/the-difference-between-prepaid-cards-debit-cards-and-credit-cards/ .