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The Four Golden Rules Of Personal Finance

Many successful people have mentors to guideyou just lost a loved one, balancing your
them in learning the skills that lead tocheckbook and paying bills is not high in
achievement, and I'll do my best to offer youyour priorities. Unfortunately, tiny amounts
some critical personal finance perspectives.of debt grow with interest and penalties into
They say that life is a school where youseemingly insurmountable mountains of debt;
learn the lesson after the test. The sameleaving you with loathsome options such as
thing applies to money, but you can't go backbankruptcy, poor credit, declining lifestyle
in time to fix catastrophic financialspending, and added stress that you bring to
mistakes that you have made over time. Asrelationships  and  work.
long as you are alive, you are a player on
the field of the money-game, and you need toRule #3 Pay attention to the finances of the
know the basic rules before you get tagged bypeople with whom you spend the most time.
the  experienced  players.Whether they are relatives, friends, or
co-workers, these people have the most impact
Rule #1: To earn money from money. The onlyon your financial life. Do they consistently
way to escape becoming a wage slave for thefollow the first two rules of the money game?
rest of your life is to set aside savings.Do they earn about the same money as you? If
The profit on your savings can be used tothe answer to either of those is "no", then I
increase your lifestyle spending, reduce therecommend that you start spending a little
number of years until you retire, or allowless time with them; and this is why. If they
you to actually have any retirement at all.don't consistently follow the first two
How are you doing so far toward saving andrules, it is unlikely that you will either.
getting  it  to  earn  money  for  you?You unconsciously model the people around
you, and the more people you are exposed to
Every dollar that you spend eliminates itsthat don't follow the first two rules, the
ability to earn money for you in the future.more likely that you will unwittingly follow
I am not recommending that you stop eating atthem. No one thinks they are 'trying to keep
restaurants and going to movies, I amup with the Joneses', but we all do it to
recommending that you use some common sense,some extent, and this is the mechanism. On
like looking at your four biggest expensesthe other hand, if they earn a lot more money
over the last few months and aggressivelythan you, you may rack up a lot of debt
finding  a  way  to  reduce  them.trying to keep up with them (meeting them at
their favorite expensive restaurant, joining
The biggest obstacle for the first rule isthem for another expensive vacation, buying a
personal debt of any kind (other than anew car because yours is the junker among all
mortgage for your home) or a lease of anyof your friends, etc.) On the other hand, if
kind. Every personal debt that you incurmost of your friends earn a lot less than
reduces your net worth which could have beenyou, you will turn into the group's banker.
working for you over your life time.For example, you'll find yourself in the
Acquiring personal debt is exactly likepattern of putting your credit card down to
putting a large hole in your wallet. In thepay for dinner and they'll all say they'll
money-game, a huge transfer of wealth occurspay you back later, but 50% of them never do;
between the 'Haves' and the 'Have-Nots' overand they don't mind taking advantage of you
the words, "I can afford that monthlybecause, after all, you earn a lot more than
payment." Here is a hint: the "Have-Nots" arethey do. Or, you and your friends need to pay
the ones who make that statement. So pleasea deposit for renting a house and they expect
don't ever look at whether you can afford ayou to write the checks because you have the
monthly payment to make a purchase; pay inmoney  available  and  they  do  not.
cash after you've saved for the item.
[Everything that you buy with a 0%-interestThe neighborhood that you live in also
payment plan must be over-priced. Behind thecreates financial pressure to violate the
scenes, your payment contract is sold to afirst two financial goals. Your neighbors are
lender with an interest rate, and retailerslikely to become friends (and I've already
don't do this without building-in angone over this), but they also influence the
acceptable profit for themselves. Asksize of your home, extent of your
retailers how much the item will cost if youlandscaping, price of furniture, and the size
pay in full, and you could get a lowerof your TV. So pay very close attention to
price.]the finances of your neighbors - if you don't
like how they are measuring up for first two
Rule #2 Always keep your finances underrules, move somewhere more in alignment with
control. The first step in losing financialyour financial goals. If your family and
control and spiraling into debt and moneyfriends, don't measure up financially, find
problems is simply not dealing with personalsome additional people to spend time with
finances. Prepare for catastrophic financialthat have financial habits that you'd like to
accidents with health, life, disability, andemulate and learn from. I have friends with a
auto insurance. Plan and save before you buywide range of income, but it is much more
something. Create a balance sheet fordifficult to follow the first two money rules
yourself at least once a year to see how youwhen I am with the extremes from my own
are progressing. Pay every bill on time, orincome. You'll just find it easier to reach
contact the creditor to tell them what isthe next rule when the peer group that you
going on and make a partial payment. If youhang out with aligns closer to your economic
are temporarily unable to handle any of this,level.
ask for some help immediately and find
someone trustworthy who will do this for you.Rule  #4  Accelerate  the  other three rules:
The most common source of financial troubleAdd to your savings by increasing your income
is a trauma in your life. This can be athrough advancing your career. It doesn't
health problem (large expenses or unable tomatter whether you enjoy it; it is a means to
work), an emotional problem (divorce or lossan end - with the end being progress toward
of loved one), or a financial problem (losingthe fulfillment of rule #1. Increase the
a job, cut in pay, relocation, unexpectedamount that you save by aggressively lowering
expenses). Whichever the source may be, itfour of your highest expenses. Start spending
leads to three emotional problems: the firsttime with people that talk about investing
is denial, the second is being overwhelmed,money and are systematically building their
and the third is hopelessness. Denial causeswealth the fastest. The combination of all
people to not open their mail and continuefour of these rules will hopefully offer a
spending as usual, and being overwhelmednext-step for you to take today to start
paralyzes people from getting assistance andgetting more 'wins' in the money-game.
dealing with the situation. For example, if



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