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6 Rules of Wealth
When it comes to spending money, we all seem to come off as experts. For some reason we're not as successful at generating wealth.
Perhaps most people just aren't made for financial success. That might be a universal truth or a very common misconception. Either way, this article is written for those who think they are made for it.
There are thousands of articles online filled with insights into the secret workings of financial wealth generation. Some offer 12 easy tips for your consideration, while others might churn out as many as a hundred. A few minimalist websites may claim there are only two basic rules for wealth. Or three. Or four.
Everyone seems to have their own idea about what constitutes a successful plan for your personal finance that will lead to wealth. No matter how trusted the source, all these ideas are merely opinions. Their real purpose is (or at least should be) to provoke your own thoughts about the subject and help you come up with your own strategies, which would work best in your individual situation.
This article is no exception. As you read these six rules of wealth, remember at all times to keep your own opinions and thoughts at an arm's length!
Keep expenses below income.
Keep all of your current expenses lower than your actual income. Simple enough.
You might ask how much less, in which case the most obvious answer would be 'as much as possible', as long as you're bound by reason and strong regard for your personal well-being. Expenses on medical aid and other basic needs might not be good candidates for personal budget cuts, but everything else is fair game.
This includes entertainment, transportation, education, all your hobbies, even shelter and food. If you can lower your expenses in any of these categories without making your life worse (be honest), you should go ahead and do it with no regard for what luxury items your crazy neighbors have decided to lease this time.
The same thing applies to your house. If 90% of the space in your house is left unoccupied 100% of the time, you should be brave enough to face the bitter truth. You don't really need it.
Students and their education are not exempt from this rule. Getting the best possible education is a great goal, but it's still not a good enough reason to get into debt you're not sure you'll be able to pay off after you get your degree. If you must follow through with an education that is above your (or your parents') current income level, try to choose the (financially) most reasonable option and don’t toy around with any more extra debt.
Don't be wasteful with your money.
Never pay for anything extra unless you have a good enough reason to do it.
The question to ask here is 'do I really absolutely DEFINITELY need this?'
Designer clothes and overpriced gadgets (*iCough* *iCough*) are some of the most common pitfalls here. To turn this into more of a challenge, try putting your every purchase under heavy consideration. Question everything. Be creative.
This doesn't apply just to the overpriced stuff. You shouldn't be buying overly cheap things either, as they will usually come with a nice bonus of higher maintenance costs, a need for frequent repairs and a premature expiration date.
Put your money to work.
This rule is all about good investments. Instead of putting your extra money away, put it somewhere where it will make you even more money as time passes by.
This is not just about stocks, bonds or mutual funds. Keeping an eye out for housing prices in your area can help you choose the best time to sell or buy. Don't try to follow everything, but study at least the things closest to you and find ways to benefit from your knowledge financially.
If your investment portfolio (if any) is being handled by someone else, let the professionals do their job, but don't shy away from keeping tabs on the market situation and asking them questions to see if your funds are being used in a way you want them to be used.
Get rich slowly, but surely.
We all would like to get rich quick. Who wouldn't?
Most of us, though, are simply not bound to experience it. Even those who are will rarely possess the capacity to hold on to their newly gained wealth for long enough to realize how lucky they were.
Avoid get rich quick schemes like a plague and start developing strategies for long-term success instead. This doesn't mean you shouldn't be free to make quick decisions regarding your money, but you should always be fully informed about them.
Don't fall for fancy explanations that don't make things clearer to you. Phrases like 'great opportunity' (unless spoken by your financial advisor) should immediately raise a red flag. Whenever you don't understand something, simply don't deal with it.
Analyze the present and plan for the future.
Keep your mind alert and eyes open.
Even when you know that your expenses are currently lower than your income, every once in a while you should revisit your financial spreadsheet and simulate possible future scenarios.
Make sure that whatever assets you've purchased are actually adding to your wealth and cut down on the liabilities. Write a new plan for yourself every month and make sure it reflects in real life, day after day. Even if it doesn't, you will know exactly where you stand and save yourself the trouble of panicking over it.
Consider the 'worst case scenario'. If you can prepare yourself for the worst thing that can happen, you'll be ready for anything.
Choose your financial partners wisely.
The people cosest to us often have as much influence on our financial situation as we do.
A bad partnership can cost you everything you have worked for, so make it a point to hold back feelings like 'trust' whenever your money's concerned. Evaluate people you're dealing with on a regular basis and don't let them sway your decisions.
You'll still be leaving much of the things to fate and blind luck, but at least you will know you did everything in your power to secure your financial independence and achieve wealth.
Seeing as all 6 of these rules are pretty simple and straightforward, you might be wondering why everyone isn't wealthy and rich. Sure, there are plenty of people who don't bother to learn the basics of financial management, but others do know them and don’t act upon that knowledge.
It might be that they're all simply lazy. Then again, many of them spend more effort on blaming the system than they ever would on actually learning and taking advantage of it.
You're free to choose either way, but in my opinion, the direction towards your personal wealth and financial freedom is much more rewarding, in addition to being filled with just enough challenges not to make it too boring!