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17.12.08

5 Financial Rules to Get You Through Good Times and Bad

The current financial crisis on Wall Street has many Americans feeling uncertain about money and investing. Not everyone is panicking though. Here are five rules to keep you on solid financial ground no matter what the economy is like:

1. Beware of over-leveraging yourself

Know the difference between good debt and bad debt, and stay away from bad debt. Good debt provides puts money in your pocket; bad debt just increases your expenses. If a school loan allows you to get an advanced degree and increase your income at work, that’s good debt. If you use debt to purchase a cash-flowing piece of real estate, that’s good debt. If you buy that new HDTV on credit because you don’t have enough money in your bank account, that’s bad debt. (You couldn’t even sell that TV for the same price you paid for it.)

Realize that even good debt can get you into trouble if something in your situation changes and you are unable to make the necessary payments. What would happen if you had sudden unexpected expenses or a loss of income? It is a good idea to have 6-12 months worth of expenses in ready money to cover such emergencies and protect you from too much leverage.

2. Pay yourself first

Before you spend your paycheck, put away at least 10% for savings and/or investing. Put away another 10% to donate to a charitable cause. If you have bad debt you need to pay off, put another 10% aside to pay down your debt. Live on the remaining 70%.

3. Live within your means (so you can increase your means!)

Manage your expenses so that they are well below your income. Start by paying yourself first (see #2, above). Create and follow a budget if necessary. Think about what kind of lasting value your purchases will really provide. Look for less expensive ways to entertain and “treat" yourself for all your hard work.

Even if your ultimate goal is to increase your means and live a more financially extravagant lifestyle, you will only be able to afford such a lifestyle after you have saved enough money to invest in passive-income-generating assets. And saving that money for investing so that you can increase your means in the long term will only happen if you live within your means in the short term.

4. Be careful where you get your financial advice

Are the people who are giving you advice really trying to help you, or are they selling something? Financial advisors don’t make money from investing in stocks and mutual funds… they make money from selling them… to people like you.

A lot of people got burned in the housing crisis because they listened to people who were selling them something: real estate agents and mortgage brokers who said that house values would always go up.

Even if the advice giver means well – a friend or relative, perhaps – do they really know what they’re talking about? Are they experts? Have they personally tried and succeed at what they are recommending? What results have the really gotten?

5. Invest in your financial education

If you don’t understand good money management yourself then you’ll always be at the mercy of people who do… or worse, people who don’t.

If you’re investing you need to understand the investment… by getting some education before you start, and by starting small and learning as you go.

source: kimkiyosaki.blogspot.com

2 Comments:

Aspiring Entrepreneur said...

I hope one of my articles will also be featured in your site. :)

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ofw Investor said...

thanks for visiting. sure..i'll feature your articles, will visit your site soon.

regards