There’s absolutely no denying that money is a big part lives. It’s the means to many important ends including security, opportunity, wish fulfillment and even philanthropy. The biggest problem is that many people simply don’t know how to handle or manage their money wisely.
In fact, building wealth is something that can be not only all-consuming but in fact overwhelming and many people spend a large portion of their life simply trying to “manage” their money. Another fact is that, if you know a few basic guidelines, and you’re consistent with them, managing money doesn’t have to be something you spend an inordinate amount of time on every day.
In this 2 Part blog we’ll take a look at 10 Rules for your Financial Life that, if used, will make handling your finances a bit easier (Making a large amount of income will certainly help, but isn’t particularly necessary.) Enjoy.
Rule #1: Always pay yourself first.
One of the main and most important principles about financial independence is that you must first pay yourself. Pretend, for example, that you are an electric bill and need to be paid every month. Take that payment and put it in an IRA, a 401(k) or even in a simple old savings account, but do something. In 30 or 40 years will be thankful that you did
Rule #2: Invest your money in something
The first thing you should invest in is an emergency fund, at least 6 to 12 months’ worth of money to cover living expenses if you lose your job or have a sudden health care problem. After that you should either use the 401(k) where you are employed or open an IRA for yourself. Every year, if possible, you should max out both of these accounts respectively.
Rule #3: No matter what the market is doing, build a portfolio of assets
Any decent financial advisor worth their salt will tell you that you need a portfolio that is “well-rounded” so that it can weather the ups and downs of the stock market over the long run. The percentage of the money that you put into stocks and bonds is easy to figure out. Simply subtract your age today from the number 110 and put that remaining number into bonds. The rest can be in stocks. For a person who is 30, 80% of their money should be in stocks and 20% in bonds.
Keep in mind that any money you plan on using in the next 5 years should not be put into the stock market but rather into CDs, money market funds or just into a savings or checking account in a regular bank.
If managing a portfolio of individual stocks isn’t something that you’re keen on doing, let someone else do it but make sure that you don’t overpay them for their services. If you find a financial advisor that you trust, they will help you to allocate your money accordingly over the years with the proper mix of investments based on your retirement date goal. Just remember that every dollar that you pay in fees for that person is a dollar that’s not compounding and not adding to your returns later.
Rule #4: Make sure that the financial advisor you hire doesn’t have a conflict of interest
What you really need to make sure is how they actually get paid for their advice. You’ll find that most people prefer “fee-only” financial divisors rather than advisers who are based on commission. A good question to ask is whether they themselves are personally invested in the things that they suggest to you.
If you’re not comfortable with the answers that you’re getting to your questions, and you’re not certain that all of your transactions are being clearly explained, you may wish to find someone else.
Rule #5: Purchase term insurance for yourself.
This is especially important if you have small children because, should you pass away, your term insurance will pay off your debts as well as cover their expenses through college. Of course you probably would want to talk to an insurance specialist in order to set this up.
Those are the first 5 Rules. Make sure to read them thoroughly and, if you haven’t started already, start using them today. Of course make sure to come back for Part 2 very soon and, if you have any questions or concerns, please let us know and we’ll get back to you with answers and options ASAP.