Buyer Beware: Fictitious Funds

Duck Tale

Every Bit Counts!

Ever look at your bank statement and scoff at the minimal interest payment you just received? In some cases it’s less than a dollar,  but hey, it’s money earned. I want to make a clear distinction between money earned and money invested, AKA Fictitious Funds.

Most finance advocates, including my fav Suze Orman, will tell you to pay down debt and build up an emergency cash reserve first, before you even consider investing in the stock market. As a young, budding finanshionista I completely agree but I would add that if you are just starting out, you should only invest money that you are not going to miss nor need.

“Uh, Miss New Money, who doesn’t need their money!? Can I have some!?”

I know. But hear me out. If that’s your situation then you are not ready to invest.You should not be thinking about it. Focus on paying down your bad debt and putting money aside.

For me, I have built, scratch that, am building my cash cushion. As you already now, I have successfully eliminated all bad debt (stickin’ it to the man!) and I invest on a regular basis in both a Roth IRA (mutual funds) and a brokerage account (individual stocks). The money that I put into my brokerage account every month is my play money.

“Now you’ve gone to far! PLAY MONEY??”

I use it to learn more about how investing works. As it goes up, of course I get excited and when it goes down, I’m bummed as anyone else would be. The thing that remains unchanged is the fact that regardless of what happens to that money, I will be ok. My lights stay on, my tummy is fed and my body is clothed and accessorized.

Investing for retirement is slightly different because if you are relying on money to carry you into old age, you care whether or not it goes up or down! It affects you on a greater scale due to the nature of the money you are putting away. Trust me I understand. But you must not lose sight off is the fact that the money you have invested is not money earned until you sell, collect and turn it into cold, hard cash.

Cash is King Baby! And if you look at the stock market as an active ocean, it becomes dangerous when you start making bets on tidal waves. And what I mean by that, is that I see that by investing I have earned a return (difference what I originally invested and what I have now) of say 20%. I then live and spend thinking that I have earned 20% more money. This is what caused a lot of people to lose all that they have because they invested more than they saved and now their investments are down.

Fall Back on Cash!

Fall Back on Cash!

I personally believe that if I save more than I invest, I am building a stable foundation to move forward and make investments, which inherently carry risk. In the case that they payoff (which they should if you do your research…more on that later), great! I sell, and collect the cash. If they don’t, then I have money to fall back on.


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