Personal Investing: The Missing Manual

Chapter 3. Invest with Open Eyes

What’s the biggest obstacle to reaching your financial goals? You. Because you’re human, you have hard-wired idiosyncrasies that push you to make mistakes with your money. This chapter explains those traps and helps you avoid them.

First, you’ll learn how to clean up your finances so you’re ready to invest. Debt has become more of an American habit than eating hotdogs, so you’ll learn which debt is good and which is loaded with nitrates. Then, you’ll find some quick fixes to investment choices you’ve already made. Next, you’ll learn how to control Americans’ second passion, overspending. Finally, this chapter identifies common psychological pitfalls that many people fall into when they invest and shows you how to avoid them—whether that means writing in an investment journal or simply turning off the TV. Consider it your “12-step program” to smart investing.

Clean Up Your Finances

How you borrow money is as important to financial success as how you save and invest it. Debt is good when you borrow money to achieve an important goal, like buying a house, going to college, starting a business, or buying a car to get to work. Borrowing to buy lots of goods you want but don’t truly have the money for isn’t good money management. And if you pay a high interest rate on that debt (like the rates credit cards typically charge), you’re on your way to financial ruin.

Borrowing for a Good Reason

Borrowing money to buy a house is usually a good reason to assume debt. ...