Having a cash cushion is an important step before you start investing. Though it’s natural to want to jump right in and get your money in the market, this can be dangerous. A successful investor understands that over the short term your investments may lose money.
We recommend a long-term buy and hold philosophy when it comes to investing. If you put all your cash into the market, you may end up needing it in the near future. The market could be down at that stage, meaning you’ll have to sell your investments for a loss. If you have a cash cushion, you can leave your investments intact and wait for a recovery.
You should therefore try to build up a cash cushion of at least three months salary.
This may sound difficult, but it’s easy to train yourself to save money, and once you get in the habit of doing so, you’ll enjoy seeing your account balance go up every month.
- Every dollar is an investment in the quality of your life.
- Build a cash cushion of 3-12 months of income before you invest.
- Track your spending by writing it down or using online tools to help you.
Retire short term debt
If you’re paying a high interest rate on credit cards, you need to retire that debt. You can’t build long term wealth while paying up to 20% on short term debt.
Treat every dollar like an investment.
This is a crucial mindframe to get into if you wish to become a successful investor. An investment is more than just shares. We make investments every day. Some of these are important, like the roof over our head. Some of these are frivolous, like a new pair of sneakers you don’t really need.
Next time you pull out your credit card, ask yourself, “Is this the best investment I can make with this money right now?” You won’t put your wallet away every time you do this, but just practicing this routine can help you save a lot of money.
Track your spending.
Ever come to the end of the month and wonder where all your hard-earned money went? It happens to us all now and then.
A good way to counter this is to start tracking your spending. There are plenty of apps available to keep tabs on where your money is going. You might be shocked to realize how much you spend simply on going out for lunch every day, or on getting that extra cup of coffee from Starbucks.
These are small changes you can make that can greatly increase your overall wealth.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Chief Investor and Co-founder at MyWallSt
Emmet’s first stock was Dell Computers, but it's not his favorite anymore! That honor goes to Tesla, who is producing user-centric products for a global customer base.