First steps to financial well-being

Trent Hamm at "The Simple Dollar" blog has an interesting article titled "10 things you need to do before you start investing". I agree with much of the article. In particular:

Money can help or hinder you, so it's a big part of the equation. Some recurring themes: own a home; educate your children; become financially independent.

Fair enough, but there are many different types of homes, educations, and definitions of "financially independent". What suits you?

And if you're in a relationship, it's important that you and your partner are on the same page. 

  • When it comes to your financial life, your net worth is the key metric.

I tend towards excluding lifestyle assets other than your home from this calculation. I even exclude cars. Why? Because for the most part, the type of car you drive is a consumption decision. It makes me think twice about buying that Porsche. 

  • Pay off your high-interest debts.

Credit cards are a prime example. If you're paying interest at 15%, paying off that debt is a guaranteed, risk-free return. You won't get that anywhere else.

  • Wean yourself off your worst spending habits.

If you want something, consider: waiting a bit, renting it, borrowing it, finding what else you have that might do the trick. Remember that every dollar you spend, is gone forever

Again: the aim is to spend your money on things that reflect your priorities and values..

  • Once you've done all of the above, if you have any other debts (including a mortgage) consider doing everything you can to pay it off. If you can do it a year or ten early, that will have a huge impact on your future outcome. And remember - the interest you're repaying is pre-tax and risk-free. It's a great deal.

Investing is an important part of becoming financially independent and having a comfortable retirement. But it's not the first step. Especially for people getting started in their professional lives, investing is secondary to knowing what you want and value; focusing on the right metrics; debt and cash management; and being mindful of your spending habits.

You need to be in a position to have funds to invest, in order to invest. 

Related: Getting rich slowly – building a solid foundation for long term wealth

Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.