An excerpt from America's Cheapest Family Gets You Right On The Money

We never saw the excerpt that Quick and Simple ran, so we'll give you our own excerpt from America's Cheapest Family Gets You Right On The Money here:

What about investments? Many people have asked us about 401(k)’s, 403 (b)’s, IRA’s, 529’s, mutual funds, real estate, and a host of other investment possibilities. We aren’t investment professionals, and thus can’t advise you as to which, what or how much you need to invest so you can retire comfortably. There are a number of well-written books by experts who will be able to show you a multitude of investment strategies. Our only caution is to avoid the books that advocate a “Get Rich Quick” mentality. In our experience the only people who make the fast buck are the ones selling these programs. Slow and steady saving combined with careful spending, while not a glamorous philosophy, is the way most us are going to get ahead.

We hope that after reading our priorities for investing you’ll be able to establish your own philosophy. If you create a habit of disciplined budgeting (saving in advance of expected expenses), building your emergency fund, and develop a windfall plan, you will have seasoned your money management and research skills, and you will have no problem learning about investments.

Here is our hierarchy for “investing.”

1.  

   Pay off all consumer debt. Carrying credit card balances at 18 percent (or more) while investing just doesn’t make sense. Sure you could possibly make somewhere between 5 to 20 percent on your investment elsewhere, but you could also lose the principal. Plus, if you compare the spread between interest earned and interest paid you’re still losing money in most cases. Pay off those credit cards first before investing in mutual funds or stocks.

2.  Pay off your cars and start saving for replacement. Since cars, in most cases, are a necessity, this one decision can save you hundreds of thousands of dollars in interest over a lifetime.

3.  

   Build your Emergency Fund. Having this money set aside in a fairly liquid account — money market access or short term CD — is the next level of protection for your family.

4. Evaluate your Life Insurance Needs. By this point you will have learned to live on less and as a result your life insurance needs will be less also. We buy level term life insurance. Our coverage is enough to provide for our family in the event that one of us dies, but no one is going to get rich. Our goal is to be self-insured and drop the life insurance once all the kids have left home.

5. Start Paying off your house. We saved almost $100,000 in mortgage interest by paying off our first home in nine years. If the only thing you owe money on is your house then consider doing what we did. Divide your investment money into two portions: Half for paying off your house, and the other half for 401 (k) (especially if your employer matches a portion of your contribution) or IRA contributions.

6. Invest in IRA’s or 401 (k)   We recommend investing only after you have built your emergency fund, established a working budget, and have all your credit card debt, family loans and cars paid off. Make sure you are paying down on your house at the same time.

Both of us have read several books on various investment strategies. We’ve concluded that for our retirement nest egg, investing in mutual funds is our best option. Several years back we tried our hand at buying stocks — we won’t go into details here, but just be assured we won’t be paying any capital gains taxes on that investment. We don’t have the time or expertise to be confident in buying individual stocks. Our mutual funds are conservative in nature. If you want a reliable evaluation of Mutual Funds, go to the library and read Consumer Reports. They regularly publish an analysis of these investments. It’s easy to read and unbiased.

A Balancing Act   A balance is required between living, saving, and investing. Spending too much time moving money from one place to the other or plunking too much money in investments can produce detrimental effects to you and your family.

Dave and Diane have been married about as long as we have. Dave is a hard worker and has a good job with a large company. He has always been diligent at putting money into his company’s matching 401 (k) program. He has over $500,000 accumulated so far. Every once in a while he borrows money from his 401 (k) to buy a used car, but beyond that, he leaves the money alone. What’s the big deal about this story you ask? It’s just that Dave is so concerned with having enough money in his retirement account that there have been many times throughout his marriage to Diane when they were just barely able to get by on his take-home pay. It’s caused stress in their relationship and resentment in Diane’s heart. Investments and savings are important. But putting money aside out of fear and to the detriment of your relationship with your spouse or friends isn’t the right way to go.

Life is more than the money you have in the bank, the cars you drive and the houses you own. When you come to your last days, your investment portfolio won’t matter nearly as much as the relationships into which you’ve invested your time. Make your emergency plans, set aside your savings, put some of your money into investments, but all the while be sure that you’re putting as much, (if not more) time and effort into those precious relationships that surround you. If your investments ever fail or emergencies deplete your savings, having strong bonds with friends and family will pull you through. These are the investments that really matter.