Hey! This is another one of those “for future reference” lists of resources for advice to give out. I’ve got no professional certifications and am not your financial planner, but I’ve been working for people that have those certifications. I think the terms of my employment say I’m not supposed to give specific advice to anyone and instead refer them to the company, so go to them for specifics.
Risk and Disaster Avoidance
One should never risk one’s whole fortune unless supported by one’s entire forces.
Niccolo Machiavelli
As much as you’d like to be a billionaire, you’d probably rather not be homeless more. Risk generally means you could stand to gain about as much as you could lose. That’s why I generally avoid options trading, to avoid horror stories like this:
Simply put, asymmetry in risk rarely works in your favor, outside of specific situations like entrepreneurial ventures you’re leading. If something sounds too good to be true, it probably is.
To that end, your day job is also a source of some risk. Even for the best employee, external factors are also a consideration. The janitors at Enron did nothing wrong, but were just as out of a job when the company exploded as everyone else. The best buggy whip makers were just as unemployed as the worst when Ford destroyed their industry. Recessions and their accompanying layoffs come for us all. In a broader sense and longer term, nations also rise and fall.
To these ends, emergency funds are the recommended strategy. Generally the rule is three months of expenses, but I’d say amounts of up to six months should also be considered. If a large number of people are out of a job due to a larger market downturn, credit will be hard to come by and jobs will be scarce for everyone. Thus, the remaining employment opportunities will be harder to fight for. This will make for a longer road to re-employment.
Building Out
Once you’re couched for defense, the extra money you make should be going towards offense, in other words making more money for the longer term. The basic option of long-term index fund investing does it for me, with the long-term goal of having my stuff make more stuff per stuff than I need and thus becoming what is commonly called “retired”. It’s a laudable goal that I think is worth pursuing. I’m being very brief, but the specifics aren’t that much more interesting.
Think and be rich!
John