🌼11 Money Rules for Financial Success
Money is a complicated subject. It’s easy to get overwhelmed by all the financial choices out there and find yourself regretting past mistakes. But with a little bit of planning, you can make sure that your money is working for you — and that it stays safe from any unexpected financial disasters.
Save early and often.
You’ll hear this rule from every financial expert: save early and often. In other words, don’t wait to start saving money for retirement or a house.
Instead of waiting until you’re 40 years old, start saving as soon as possible — even if it’s just $5 a week in an online savings account. It all counts!
The sooner you start saving, the more time your money has to grow and compound interest (which means that the money makes more money).
If you save for 10 years at an average annual rate of return of 7%, then by investing just $200 per month ($2,400 per year) into your retirement fund instead of spending it on something else like a new car or dining out with friends every weekend, by age 65 when most Americans retire they’ll have over $1 million saved up!
Spend less than you earn.
The first rule of money is to never, ever go into debt. The second is to spend less than you earn.
If you’re spending more than your income, something has to give: either your savings will be depleted (meaning a lot less flexibility when it comes time to retire), or your debt will increase and weigh on you like an albatross around your neck (or a gorilla on your back).
To avoid these outcomes, prioritize saving rather than spending in the first place. If there’s enough left over after paying bills and covering other expenses such as food and transportation, then by all means enjoy yourself! But if not… well…
If keeping track of where your hard-earned money goes seems daunting (and frankly it should), there are some great free tools out there that can help with this task: Mint or Personal Capital are two examples that let you set up budgets for different expense categories so that at any given time — say after getting paid — you’ll have an idea of how much cash is available for discretionary spending versus what needs to go toward paying off loans or saving for retirement funds.
Pay yourself first.
Pay yourself first. There’s no better way to ensure that your money is going toward the things that are most important to you than making sure it comes out of your paycheck before any other expenses get paid.
This means not only paying off debt and saving for retirement, but also building up an emergency fund, contributing to a Roth IRA (if eligible), and investing in property or other assets that will help secure your financial future.
Pay yourself first by setting up automatic payments from your checking account into an investment account every month. If this isn’t possible for whatever reason, deposit each paycheck in a separate savings account at a bank with no fees or minimum balance requirements so that you don’t touch the money until it’s time to invest it or use it as part of an emergency fund.
Contribute to retirement accounts.
Your first step to achieving financial success is contributing to retirement accounts. Retirement accounts are called 401k, IRA, or other similarly named plans depending on the type of employer you work for.
Contributing to a retirement account is a great way to get your finances started on the right foot. You can contribute pre-tax dollars into these accounts, reducing your taxable income and saving money in taxes immediately.
The money goes into an account that grows tax-deferred until you withdraw it later in life when you’re retired or near retirement age. However, contributions aren’t mandatory and are limited based on certain conditions such as income level and how much money was withheld from your paycheck during the year (if any).
Invest in your future.
Investing in your future can seem scary, but it is important to do. The benefits of investing are high returns and low risk.
The risks include market volatility, poor choices, and timing the market incorrectly. The amount you invest depends on many factors including your financial goals, investment horizon, and risk tolerance level.
Where to invest also depends on many factors including investment objectives and time horizon; a wide range of investments exists including stocks, bonds mutual funds ETFs, etc., so finding an appropriate way to build a diversified portfolio is key.
Investing regularly into an account with a professional money manager will help keep track of all these variables as well as provide guidance on when (and if) it’s time to buy or sell based upon their analysis of the overall market conditions at any given time
Don’t be afraid to ask for advice.
If you’re looking for financial advice, it’s important to remember that the best source of information is often free.
When you have a question, don’t be afraid to ask someone who knows more than you do or can point you in the direction of someone who does. You can learn from other people’s mistakes as well as your own; why not take advantage of that?
Asking for help doesn’t mean being lazy or irresponsible; it means recognizing what knowledge and experience others have that could benefit you — and taking advantage of it!
Don’t be shy about asking for advice from people whose opinions and skills are respected by those around them. Not only will those individuals be happy to assist, but they may also give their blessing (and perhaps even their collaboration) when necessary.
Set long-term and short-term goals.
Your long-term goals are your end game. They’re the big picture you want to achieve in the future, such as retiring at age 65 and moving to Maui with your significant other, who has also retired from work at age 65.
Short-term goals are what you need to do over the course of several months or years to achieve your long-term goal.
For example, if one of your long-term goals is to save $10 million by age 50, then a good place for you to start is by setting a goal of saving $1 million by 35 years old (which means that you have 7 more years).
This could be done by setting up an automatic savings plan where 10% of each paycheck goes into an investment account and investing it wisely so that it grows over time without being taxed out or taxed later when withdrawn after retirement age (65+).
Diversify your investments.
Diversifying your investments is a sound strategy for long-term financial success.
While some people are comfortable investing in one or two stocks, we recommend that you spread out your investment dollars across a variety of different assets.
This will help you reduce the risk of losing all of your money if one stock does not perform as expected.
The same logic applies to investing in other types of assets, like real estate and mutual funds; the more diverse your portfolio is, the better protected it will be from any market downturns or fluctuations in individual assets’ value.
There are many ways to diversify your portfolio: You can invest in multiple industries (e.g., technology versus healthcare), companies based on size (e.g., small cap versus large cap), and geographic location (e.g., U.S.-based companies vs Canadian ones).
Since no single investment is guaranteed to be profitable over time, look for opportunities where there’s less risk involved — for example, if one company thrives while another struggles, diversification helps ensure that losses aren’t too steep while gains aren’t too high either
Ask yourself why you’re making money decisions.
If you don’t know where you’re going, how will you get there? Think about it: if someone told you they wanted to go on a road trip but didn’t really care which direction they were heading in or what their destination might be, would you trust them with your own car? Probably not.
This is why it’s so important to ask yourself why each money decision feels right for your personal goals and priorities. Do the costs outweigh the benefits? Are there better options available? How will this affect our future plans as a family or individuals?
If something doesn’t fit into our bigger picture then we’ll have to make another choice — but knowing what that choice should be is always an improvement over just winging it!
Keep the end in mind.
If you’re not sure what financial security looks like for you, think about the future and consider how much money would be enough.
How much do you need to retire?
How much do you need to be able to send your kids or grandkids to college?
How much would it take for them not to struggle in life as they grow up?
If we lived our lives with this “end” in mind, we’d all save more money, spend less money and invest wisely.
We’d also make better decisions about our careers, which would lead us down a path that helps us reach our goals rather than hindering them (for example: working extra hours instead of spending time with family).
CONTRIBUTED BY Paul B.
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