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Eight Investing Rules You Need To Follow To Make You Rich

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Eight Investing Rules You Need To Follow To Make You Rich

Investing is like training for a marathon. Both require discipline, focus, determination, balancing risk and safety, and long-term vision. These investing rules have been tested and proven effective by generations of investors. Many people from every kind of background have followed these investing rules to wealth … which means that you can, too.

1. Start early and invest regularly

Start early

Warren Buffet once said, “If, when making a stock investment, you’re not considering holding it at least ten years, don’t waste more than ten minutes considering it.” Think of investing as training for a marathon. If you’re a couch potato, you can’t start running the week before the race and expect to win. Not only will it take a while to get in shape; you’ll need to be able to weather some injuries, illnesses, and other setbacks before race day.

Keep in mind that the longer you invest, the more you take advantage of compounding interest, and the more money you make long term. If you like numbers, just for fun, pull out a spreadsheet or calculator and start tinkering with the Rule of 72, which states that if you divide 72 by the annual rate of return, you get the number of years it will take for your investment to double in value.

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Invest regularly

If you want to run a marathon, you can’t just go out there and run a few miles once in a while and expect to see much improvement. Regular training, and regular investing, is key. If you try to do all of your marathon training at once, you’re almost guaranteed to injure yourself, and the same thing can happen if you dump a whole lot of money into one bad investment.

One nice aside about this investing rule is that you can take advantage of some nifty tax breaks every year by showing the IRS that you’re making regular contributions to an IRA or other retirement fund.

2. Choose your asset allocation — your marathon training program

Asset allocation” is the process of deciding what kinds of investments you want to make. Different investments behave differently and yield different amounts of money in the short- and long-term, and — just like marathon training — there is no one-size-fits-all investment strategy for everybody. Finding a balance between risks and rewards is a moving target that depends on a lot of variables.

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There are three traditional asset classes: equities (stocks), fixed-income (bonds), and cash and equivalents (savings accounts, certificates of deposit, money market funds). Stocks have historically yielded the highest returns for the greatest risk of the three asset classes. They’re the sprints of the marathon training world: they’re going to increase your strength and stamina the most, but will also put you at the highest risk of injury. Bonds are the middle-ground investments. They’re like tempo and other lower-intensity interval training; lower risk of injury, but also more modest benefits. Cash and cash equivalents are your steady-state running sessions and endurance miles. You’re not too likely to hurt yourself — or lose money — but they’re also going to yield the smallest returns for your effort.

3. Rebalance yearly

Rebalancing is the practice of periodically evaluating your portfolio — your “training program” — and making any tweaks to the balance between high- and low-risk investments. You could rebalance more often, but the consensus seems to say that a year gives you long enough to see how everything is doing over a longer period of time. Plus, it gives you a regular date to write in your calendar. ‘Nuff said.

4. Keep costs down

“The goal of the nonprofessional should not be to pick winners … the ‘know-nothing’ investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results.” — Warren Buffett

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This is actually a pretty simple concept. The less you’re paying in “overhead” — fees, taxes, or heavy shoes — the more of your money (or energy) you get to keep and reinvest. Also, lower-cost investments tend to perform better than their higher-cost brothers and sisters. You don’t see too many marathoners wearing combat boots. Which brings me to the next point:

5. Make index funds the core of your portfolio

Index funds are a type of mutual fund that is built to mimic the performance of a market index such as the S&P 500. One of the features of an index fund is — you guessed it — low cost. In addition, index funds are intrinsically diverse. They include a range of high-risk and low-risk investments, all put together by professional folks who know what they’re doing and have already done all of the hard work and research for you. That’s pretty hard to beat.

6. Focus on your goal, which is to make money

Remember, this is not casual running; you’re training for a marathon. You’re not just playing with your money; you’re moving toward riches. As tempting as it might be to invest in the latest bright-and-shiny, new moneymaking concept, or to tinker with new and cool marathon training theories, if you’re just starting out, you’re better off following the investment rules set down by the generations of investors and experts who have already made the mistakes, done the research, and come up with strategies that work. After you have a nice cushion of money or a few marathons under your belt, it’s probably fine to do a little experimenting, but until then, keep it safe.

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7. Don’t try to outperform the market

This is one of my favorite investing rules. If you’re running or investing at all, you’re already ahead of 99% of the population, so relax and don’t try to outfox the market. You can’t run any faster than you can … and you can’t force your investments to perform any better than they can.

8. Don’t spend your principal

This is probably the most obvious of all of the investing rules, but once you’ve invested your money, keep your hands off of it. Spending your investment is like skipping training. You aren’t going to get ready for that marathon if you don’t run, and your money isn’t going to gather interest if you spend it on anything besides your investments.

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Last Updated on July 20, 2021

Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

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Financial Freedom is Not a Fantasy: 9 Secrets to Get You There

Have you ever considered your life now, and how it would be if you had more time to spend with your family and less worries about money?

Nowadays, financial stress is one of the most troublesome weights in life. If you’ve ever encountered financial stress, you know the difficulty of not having enough income to pay your obligations or bills.

Many people say that money is not the ultimate goal of life. While that’s true, money certainly plays a very significant role. The meaning of financial freedom changes with the different phases of our life, but ultimately, it is something that many people strive for.

In this article, we’ll explain how to capture that financial freedom you’ve been looking for. Read on to learn the secrets to financial freedom.

Break Free of Your Finances

Financial freedom is about having a constant flow of cash from your assets to cover all your regular needs.

When you are not worried about your income, or living paycheck to paycheck, you gain a great sense of freedom. It’s the freedom to be obtain and do what you truly need to make your way through everyday life.

Gaining financial freedom, though, is a process of growth, making small improvements and gaining emotional strength.

Though it seems hard to believe, it is really very simple to get financial freedom.

To do so, you simply need to make sure that your assets exceed your liabilities. In other words, you’ll need to find the sweet-spot where your residuals meet or surpass your expenses. This is something that you can achieve with the proper plan.

While not every person will accomplish financial freedom, the potential for anyone to do so is certainly there. Anyone can achieve this success, regardless of their income level.

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Outlined below are 9 secrets that will help you in your goals of achieving financial freedom.

1. Stop Unnecessary Spending

We often spend money inwardly, instead of objectively.

For example, you may spend when you’re anxious, depressed, restless, exhausted, from fear of missing out, or to please others. This is a very unhealthy way to handle your finances.

To stop this habitual spending, log down all your spending over the course of a month.

Just as some people keep a food diary, keep an expense diary. Remember not to just write down how much and what you spent the money on, also include the circumstances of why you spent the money. Was it an impulse buy at the checkout line or was it something you planned to purchase?

This increased self-awareness could enable you to avoid triggering situations in the future when you are considering an impulse buy.

2. Plan a Monthly Budget

This is a great opportunity to get serious.

Take a seat with your spouse or partner and make a monthly budget based on your income, not your expenses. You are never again going to spend more cash then you have on hand.

Overspending is the thing that led you to more financial obligations. Make sure you decide every month what is coming in and what will be going out and stick to that budget… no matter what.

3. Cut-up Credit Cards

Perhaps you are the type of person who always pays your credit card balance in full before the end of your billing cycle, and enjoys the reward points you gain. If this is the case, then you’re already way ahead of the game.

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If not, you may want to consider ridding your life of the burden that credit cards bring.

Many cards have strategies set up so that if you make a certain number of late payments, they will raise your interest rate much higher. This can really add up in the long run and you won’t be doing your financial situation any favors. If you’re prone to late payments or have a large balance due on your cards, cut them up!

Without proper self control on credit card spending and payments, you are basically throwing your money away. To ensure that you have better control over your spending, use only cash or debit for all future purchases (and don’t forget to pay at least your minimum payment on your cut-up cards each month!).

4. Increase Savings

There is no doubt that for a comfortable retirement you must accumulate satisfactory savings throughout your working life.

It’s good practice to save up to 15% of your income.

Start with your workplace 401(k), if you have one. If not, a Roth IRA (if you are eligible) or a traditional IRA (if you are not eligible for the Roth) are the next logical steps.

Increase in longevity means you might be able to look forward to 25 to 30 years in retirement, or possibly even significantly more. Investing now in good retirement plans will ensure that you have a guaranteed a stable monthly income when the time comes to stop working. [1]

5. Invest Wisely

Consider investing in funds.

Specifically, you will gain higher returns if you invest in different types of mutual funds such as Debt funds, Equity funds and Hybrid funds with a proper balance, although it absolutely relies on your personal preferences and sense of risk taking.

To get the most of these benefits, make sure you are investing in a variety of assets. Another resource of investing in mutual funds is SIP (Systematic Investment Plan) where you invest some money every month in funds. SIP works by averaging the per unit price of the stock.

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Mutual fund investors are aware of the benefits of an SIP (Systematic Investment Plan). For one, it is the most secure way to invest in equity mutual plans so that wealth is created over a long period of time. This plan also helps you to gain a better sense of financial discipline, which will come in handy in all your financial endeavors.

6. Invest in Gold

There isn’t really a better way to invest in gold than to have the physical gold itself in your possession.

You can purchase gold coins and bars from mints as well as from coin dealers and other private sellers.

Another way to invest in gold is through ETFs (Exchange Traded Funds).

These are is similar to mutual funds but they are exclusively investments of gold. ETFs are great because they offer more liquidity; the ETF owns the actual physical gold, stores it, and retains the value of the shares. These shares can then be bought and sold in the stock market, and one big benefit is that the transaction costs of gold ETFs are much lower than the that of physical gold.

With its consistently-increasing demand, investment in gold can be very wise long-term investment to make.

7. Stash Emergency Funds

Whether it’s a cash gift or a work bonus, always try to save any extra money that comes your way rather than making unneeded purchases.

If you get paid every other week, you’ll get an “extra” paycheck (three rather than the usual two) twice a year. Either save those paychecks towards your emergency funds or utilize the money to pay down other obligations, such as loans, credit cards or other debts.

Make it hard to get your cash.

Put your savings in an alternate bank, maybe an online bank that forces you to delay for several business days before transferred money hits your regular bank account.

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8. Find Fabulous Mentors

Find a mentor, such as a friend or family member, who has exceptional control over their finances and pay attention to everything they do.

If you do not have any friends or family that are enjoying financial freedom, then find a mentor online! There are numerous blogs and guru websites featuring the advice of many people who have reached financial freedom, and they exist primarily to let you in on how to achieve it for yourself.

There are also plentiful forums available that share tips and tricks on how to best achieve financial freedom. Read as much as you can and start changing your habits for the better.

9. Be Extra Patient

Patience is the key of financial success.

Being patient can be quite tough, especially when you’re struggling with your finances, but having faith is worth it. You’ll continuously be on the right track if you are taking the proper steps above.

So don’t be discouraged, even if you are only saving a few dollars a month; it all adds up. Within just a few years you’ll look back proudly at your accomplishments and be glad that you had the patience to get there.

Financial Freedom for All

Anyone can achieve financial freedom, regardless of their financial circumstance.

Use the tips provided above to get yourself on the track to financial freedom and toss your monetary concerns out the window. If you wish to achieve a life with financial freedom for yourself and your family then you must adopt a disciplined approach towards your finances.

Following the simple secrets above is a great start to making your money work for you, so you can work less and live more!

Featured photo credit: rawpixel via unsplash.com

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Reference

[1] Hartford Gold Group: IRA Retirement Accounts

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