When confronted by a gang of armed guards, Indiana Jones instinctively follows "bar brawl rules" by attacking the big guys first before engaging the smaller ones. His idea is to remove more dangerous foes early, while he has still sufficient energy.
In like manner, our approach to debts should be the same. Debts are significant obstacles to investing. We should prioritize and eliminate high-interest debts, then work our way down from there. Examples of high-interest debts are credit card loans and non-tax deductible debts such as car loans, afterwhich proceed to attack mortgages and other debts that have tax write-offs.
After we have eliminated our high-interest debts, we could now pay ourselves every month by saving some portions of our earnings to banks or investing it to worthwhile securities. The rule of thumb is to earmark at least 10% of our monthly income to savings or investments. Likewise, we have to at least save an amount equivalent to three months of our expenses as reserve funds or buffer in case of emergency or sudden financial woes.
The moment we have fixed our personal finances, we may feel that we've earned the right to walk off victoriously into the sunset like Indiana Jones.
*Source: www.investopedia.com
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