Conventional financial wisdom is often quoted and yet unfortunately it is rarely followed. This is a missed opportunity because some of the basic rules can provide a strong financial foundation. A foundation that can make a difference on reaching your goals.
What is the most basic and yet most important financial rule to follow?
Always live within your means. If you spend more than you make, you are on a path to build debt that you can’t repay. This lifestyle always ends up creating a financial situation that is not possible to maintain.
Is there an important retirement rule we should be using?
Yes, saving at least 10% of our income as quickly as possible for retirement. The sooner one starts and the quicker they reach the 10% threshold, the bigger their retirement nest egg is going to be at retirement. We all need between 15 and 20 times our salary to ensure a long and worry free retirement.
What does “a penny saved is a penny earned” really mean?
This rule is really a more complicated way of saying always comparison shop on all of your purchases. Any money you save is like earning it because you are paying less for your purchases. If you always follow this rule and look for the lowest price, your financial situation is going to be better because you will be spending less.
Why is diversification so important for investing?
Diversification helps investors achieve the right balance between risk and reward so that you can capture some of the upswing and only have to absorb some of the downswings. Diversification also can help an investor be less anxious about minor changes in the market. It is a proven strategy for long term investing success
What makes building an emergency fund an important rule to follow?
Regardless of income level, many people will experience in their lifetime a large unexpected expense or a severe decrease in income. The emergency fund is the backstop that keeps these situations from creating financial distress. This is one rule that all income levels should be following.
Will following all of these rules guarantee financial success?
Unfortunately, when it comes to money matter nothing is guaranteed. However following these rules will give you an incredible advantage. One that will definitely help you have a much better chance at financial success all through your life.