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The Financial Rules

The Basic Financial Concepts That Build Wealth

We've highlighted a path to financial freedom based on basic financial concepts that have helped millions succeed at building wealth and finding the financial success that they have earned.  We've drawn on our years of experience, combined with basic financial principles that are taught in all college finance courses to come up with the most important factors involved in attaining long term financial success.  We call these concepts the financial rules and encourage you to learn and understand them.

Have realistic expectations

Don't plan on getting rich overnight. Building wealth takes time and you must start small. Properly setting your expectations will ensure that you stay on course and don't give up.

Live within your means

Making a lot of money doesn't mean you'll build wealth unless you save money.  Living below your means and saving a high percent of your income is key to long term wealth.

Stay out of credit card debt

Staying out of credit card debt is essential if you want to build wealth. High credit card fees and interest rates can really set you back. If you're already in credit card debt, focus on getting out. 

Maintain spotless credit

Your credit score is like your lifetime report card.  It lets anyone doing business with you decide if you are a good risk or not.  Keep your credit report in good shape and your credit score should follow.

Rationalize your spending

This is a simple rule but one that is often neglected. Before you spend money on anything, use your common sense to make sure that you are not wasting money and that you are getting the best value for your money.

Understand opportunity costs

Because money is limited, life is really just a series of choices between different scenarios. Be aware of these opportunity costs and make sure that you use them when making any financial decisions.

Understand the time value of money

The longer you invest a dollar the more that dollar will be worth.  A dollar invested for 30 years is worth multiples of a dollar invested for 5 years.  Use this concept when investing your money.

Understand the compounding effect of money

Money grows at a faster pace each year because of the compounding effect. Find out how this rule works and then use it to apply to your personal finances.

Take appropriate risks

Extreme risk takers are the richest people in the world.  They are also the poorest.  People that take no risk also fall behind other investors. Learn how to take the right amount of risk for you.

Find ways to save more money

Now that you've started paying your debt, saving money, and maybe even investing, it's time to step it up and find more ways to save money and add to your wealth.

Invest with a new frame of mind

You literally need to change the way you see money and financial decisions in order to be objective and to maximize your wealth. See what we mean by new frame of mind.

Start as soon as possible

Waiting until you have money is too late. You need to find ways to save and invest money as soon as possible.  Waiting until later in life makes it much more difficult.

Prioritize your investments

Look at your investments and debt payments all at the same time and prioritize where your money should go each month based on such factors as interest rates and tax advantages.

Diversify your investments and wealth

Don't keep all your eggs in one basket. Spread your savings and investments over many different investments including stocks, bonds, real estate, and commodities.

The Basic Financial Concepts

Really a subset of our financial rules, these financial concepts are taught in business schools and should be learned by everyone. Use them to your advantage to build long term wealth.