If you're a Motley Fool reader, my guess is that you find investing just as much fun as I do. But researching stocks can be so enjoyable that I take my eye off the ball -- the foundation of my financial house. And that's why my top New Year's resolutions are all about making sure the basics are covered so my family is safe, and I can enjoy the fun side of investing worry-free.
The iceberg starts under the water
When it comes to money, investing is really the tip of the iceberg. There's a whole list of other things that need to be done first, and they are often hidden under the waters of daily life. For example, are you saving enough money? The goal is 10% or more of your salary. But if you put it on autopilot years ago, then the numbers might be different today than they were when you set things up.
Have you gotten a raise? If you did, great! Can you put that raise away in savings -- or at least part of it? If not, are you still putting at least 10% away? The raise might have mucked up your percentages in some way. It's worth a quick look.
How about expenses? Did you pay off a car loan, or did some other ongoing expense go away? If so, that money could all be put into savings without any impact on your life, or at least free up an extra percent or two of your income. Remember, when it comes to investing, you can't do it without savings. And of course, the more you save, the more you get to invest.
Saving is easy to get a handle on because it has a direct relationship to investing, but there are other money issues you need to think about, too. For example, I want to ensure my family is safe and sound no matter what happens to me or the stock market. And that means life insurance and an emergency fund.
Term life insurance is the meat and potatoes of policies. It's relatively cheap and simple, and it doesn't come with bells and whistles. So long as you're alive, you and your loved ones get nothing out of it. But the protection it offers is priceless for those you'll leave behind when you do kick the bucket. Even if you have insurance, however, you should take a few minutes to think about it. Is it enough? And does it last long enough?
If you bought your insurance a long time ago, then you may have moved up the socioeconomic ladder since then, or had another child. What you bought home when you had one child and lived in an apartment probably isn't enough to support two kids, two car payments, and the mortgage on a three-bedroom house.
Then there's the time issue. If you purchased a 20-year policy after your first child, and then had a second child five years later, then what did that do to your insurance plan? I'll tell you: It messed that plan up. Your second child will be 15 -- still completely dependent on you and your spouse -- when that term life policy runs out. That's not ideal. You might want to re-examine your life insurance, just in case.
The same kinds of issues impact emergency savings. Putting aside three to six months' worth of living expenses is different when it's just you and your spouse. It's a bit harder to pay for you, your spouse, and a child or two living in a house with a six-digit mortgage. Are you sure the money you've put into the rainy-day fund is enough? Six months without any money coming in the door is a long time, so don't skimp.
Where do I stand?
And now for a curve ball. Maybe you're at the other end of the life spectrum. Maybe your kids have all moved out, and you can ditch the life insurance, sell the house, and get a two-bedroom condo in Florida (the extra room is so the kids can visit for a few days). You might actually be able to push some of that emergency fund into your investment pool because you have too much put aside for a rainy day now that you're shifting to a lower gear.
I'm not at the point where I can downsize yet. But my life insurance -- and, just as important, my wife's life insurance -- is still good enough for our needs. And my family has plenty of emergency money socked away. So I'm all good on those two points.
But my wife and I decided we'd try to make one change. We're going to put a little more into our long-term savings and investing pool. It will mean pulling back on spending -- for example, eating out a little less this year -- but we'll try to make up for that with more game nights and volunteering.
Those are fun family events that don't cost as much as eating out, or shopping at the mall, and they bring us closer together. So I see saving more as a win/win. (And I get more money to invest, so really that's a win/win/win!)
These are really the basics of money. If you don't have your savings, insurance, and rainy day fund up to snuff, then the fun investing part is a bigger risk then you might think. My New Year's resolutions with money are kind of boring, but I'm sleeping much better now -- and having more fun investing -- because I know they are taken care of.