I recently had a friend ask me what the three most important pieces of advice you could give someone about their finances. I thought this was an excellent question and one that many others likely had as well. This really made me think, “If I could only provide three pieces of advice, what would they be?"
When it comes to your overall financial success, mastering these financial rules can provide the sturdy foundation needed to build your wealth. And the steps to financial success are probably far less complicated than you imagined. What is the most impactful information I could pass on? (For more, see: 10 Common Traits of Wealthy Investors.)
First, let’s define good financial health as being that you have the means to achieve all of your goals (whatever they may be). So how can you reach your goals consistently over the course of your lifetime? Here are the three unbreakable rules everyone should follow to set themselves up for financial success:
1. Live Within Your MeansIt might seem like stating the obvious, but living within your means is so fundamental to financial success that it can't be repeated often enough. In fact, never mind something as lofty as financial success. Common sense tells us that if we spend more than we make, our overall net worth will drop.
But what exactly are we trying to say when we insist you that live within your means? Simply put, living within your means entails having enough left over each month to invest, save and contribute to your retirement fund goals. Ideally, you should save and invest 20% of your net income. Seems high? Being committed to your future financial success means you have the discipline and willingness to put your money to work for you.
Remember, time is your greatest asset to growing your wealth if you start early because of the compound interestyour money earns when you are a consistent saver over a long period of time. Also, if it was easy everyone would be financially successful.
So now we know what it means to live within in your means. How do we do it? Check out this article to learn how truly successful people prioritize their finances.
2. Keep it SimpleNo matter what area of your financial life we are talking about, the simpler the better. How do we keep it simple? For example, when it comes to cash management you can:
- Reduce the number of checking, savings and investing accounts you have.
- Automate as much of your bill paying as you can.
- Automate your savings and investing so money comes directly out of your paycheck or checking account into your savings account every time you are paid.
- Don’t carry around your credit cards with you so you won’t be tempted to use them.
3. Don’t Chase the Next Big Thing and Be PatientThe third unbreakable rule has two parts. It's imperative that you keep your investment strategy simple. Here are two ways to accomplish this:
- Don't chase the next big thing (see my article on Bitcoin). You don’t need to hit a home run to grow wealth. You do need average market returns. You also can’t afford to strike out. No matter how tempting it becomes to invest in a suddenly flourishing sector, you must keep your portfolio diverse at all costs.
- Be patient. Don't succumb to the whims of the market when things get volatile because they will. If you are invested properly (in line with your risk tolerance and goals) you shouldn’t have to make any drastic changes.
Read more: The 3 Unbreakable Rules for Financial Success | Investopedia https://www.investopedia.com/advisor-network/articles/3-unbreakable-rules-financial-success/#ixzz4z8BL4KzD
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