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Eight Investing Rules You Need To Follow To Make You Rich

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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Published on September 17, 2018

How Being Smart With Your Money Leads to Financial Success

How Being Smart With Your Money Leads to Financial Success

Achieving financial success is not something that just happens. Maybe if you win the lottery or something, but for the average person like you or me, it comes from a series of small steps you take over a long period of time.

With each step, you form a new smart money habit. And with each smart money habit, you build towards financial independence.

So what sort of habits can you form to get on that path? Let’s take a look at smart money habits you can start today to get you closer to a financially independent future.

1. Avoid being “penny wise but pound foolish”

It’s tempting to try saving a couple cents here and there when buying small items. However, that’s not where the real money is saved. You’re putting in extra effort for something that doesn’t move the needle.

You get the most bang when you’re able to cut down on your bigger bills. For example, finding a lower interest rate for your mortgage could save you $50+ per month. And cutting your transportation bill by purchasing a cheaper car or taking public transportation can provide large gains as well.

So, look at your recurring expenses such as housing, transportation, and insurance, and see where there’s wiggle room. It’s a much better use of your time than trying to pinch pennies here and there on smaller purchases.

2. When you want something big, wait

Impulsivity can get you in trouble in most aspects of life. Finances are no different.

It’s human nature to see something and want it right then and there. It starts as a kid in the checkout line at the grocery store, and it continues on through adulthood.

We get an idea in our head of something we want, and it’s hard not to go out and get it right then.

A good example is wanting a new car. Perhaps you’ve had your car for several years. It’s crossed the 100k mile mark. Maybe maintenance is due, and you’re annoyed that you need to replace the timing belt or purchase new tires.

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So, you get the itch.

You start digging around online, and you realize you could trade in your current car for something newer and more exciting… all for a few hundred bucks a month. Then you get obsessed.

Here’s where you have to take a step back.

Your newfound obsession is clouding your judgement. Rather than giving into the impulse, wait it out.

Set a timeframe for yourself. Maybe you come back to the decision three months down the road. See if the obsession lasts.

It might, but often, a funny thing happens. Often, you forget about it. And often, you find that the new car wasn’t a need at all.

The impulse faded. And you just saved yourself a ton of money.

3. Live smaller than you can afford

You finally get that big raise. And you want to celebrate – and why not?

You’ve been looking forward to this forever. And after all, it was all due to your hard work.

That’s fine, splurge a little. However, make it a one-time deal and be done.

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Don’t get caught in the trap that just because you’re now making more money, you should spend more.

Too often, people get more money and feel like they that gives them the means to buy a bigger house, a bigger car… you know the drill. Resist.

The fact is that living smaller than what you can afford is one of the fastest ways to build savings.

But if you constantly upgrade as you begin to make more, then you’ll never get ahead. You’ll just build up more debt along the way and have just as little wiggle room as before.

4. Practice smart grocery shopping

Food… it’s one of the biggest portions of any budget. And if you’re not careful, it can be one of the biggest drains on your wallet.

But luckily, there are a few things you can do to ensure that you stay smart with your money when buying groceries.

Create a grocery budget

Set a strict weekly grocery budget. When you know how much you can spend on groceries, you can then plan your weekly menu around it.

Once you know what all you need, you can go shopping and keep a running tally as you shop to ensure you’re on track.

I tend to do this in my head, rounding for each item. However, writing it down as you go would probably work best for most people.

Make a list… and never deviate

Never go to the grocery store without a list. If you go to the store with a ballpark idea in mind, you don’t have a true ide of what you need.

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You’re not well-researched. You don’t know what the sales are. As a result, you’re going to make decisions on the fly.

These impulse decisions will lead to overspending, which will derail your grocery budget.

Eat before going grocery shopping

It’s also important to eat prior to going to the grocery store. Hunger is a powerful force.

If you’re shopping on an empty stomach, everything is going to look good. In particular, you may find a lot of ready-made, processed snacks will look enticing.

After all, you’re hungry now and that food is easily available. So subconsciously, you may lean towards those items.

Unfortunately, not only are those items typically less healthy, but they’re likely more expensive. You pay for convenience.

However, when you eat prior to shopping, then you’ll shop with a clear mind. Your hunger won’t cloud your judgement, influencing you to make poor decisions like a cartoon devil resting on your shoulder whispering in your ear.

This makes it much easier to stick to your grocery plan.

5. Cancel your gym membership

Now that you’re all set on your food, it’s time to get smart about managing your budget in terms of physical fitness. And let’s begin by avoiding the gym. The gym bill, that is.

The average gym membership costs around $60 per month. That’s $720 a year.

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Yet, two out of three gym memberships go unused. That means two-thirds of people who have a gym membership are literally giving away almost a thousand bucks a year. It’s crazy!

I recommend seeking an alternative. One good alternative is to look into fitness streaming services.

Streaming services allow you to stream hundreds of workouts like Insanity and p90x, right in your own home for around $10-20 a month. That’s $40-50 less a month than the average gym membership.

Of course, then there’s the free option. The internet is full of free workouts that you can do on your own with minimal or no equipment.

For example, there’s the Couch to 5K program, that I personally used a decade ago to ease myself from couch potato to running my first 5K race. If I could do it, anyone could.

Then there are free resources like reddit that have limitless information on workouts. The Fitness subreddit has done all the research for you, populating workout tips and detailed workout routines for anyone to use in their wiki.

There are several routines that require no equipment. And you can join in on the subreddit to become part of the community, making it easier for those seeking comraderie and encouragement in their fitness goals. All for free.

It’s baby steps… And baby steps can start now!

I’ve never met anyone that can’t stand to be a bit smarter with their money. And on the flip side, anyone can get smarter with their money. But remember, it doesn’t happen all at once.

Begin by fighting your impulses. Prepare for the week and be smart at the store. And cut monthly expenses like gym memberships that are overpriced and you probably aren’t getting your money’s worth out of anyway.

The devil is in the details. And the details can change your lifestyle and prep you for a financially independent future.

Featured photo credit: Unsplash via unsplash.com

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