| Many successful people have mentors to guide | | | | you just lost a loved one, balancing your |
| them in learning the skills that lead to | | | | checkbook and paying bills is not high in |
| achievement, and I'll do my best to offer you | | | | your 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 you | | | | seemingly insurmountable mountains of debt; |
| learn the lesson after the test. The same | | | | leaving you with loathsome options such as |
| thing applies to money, but you can't go back | | | | bankruptcy, poor credit, declining lifestyle |
| in time to fix catastrophic financial | | | | spending, and added stress that you bring to |
| mistakes that you have made over time. As | | | | relationships and work. |
| long as you are alive, you are a player on | | | | |
| the field of the money-game, and you need to | | | | Rule #3 Pay attention to the finances of the |
| know the basic rules before you get tagged by | | | | people 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 only | | | | on your financial life. Do they consistently |
| way to escape becoming a wage slave for the | | | | follow 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 to | | | | the answer to either of those is "no", then I |
| increase your lifestyle spending, reduce the | | | | recommend that you start spending a little |
| number of years until you retire, or allow | | | | less 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 and | | | | rules, 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 its | | | | that 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 at | | | | them. No one thinks they are 'trying to keep |
| restaurants and going to movies, I am | | | | up 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 expenses | | | | the other hand, if they earn a lot more money |
| over the last few months and aggressively | | | | than 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 is | | | | them for another expensive vacation, buying a |
| personal debt of any kind (other than a | | | | new car because yours is the junker among all |
| mortgage for your home) or a lease of any | | | | of your friends, etc.) On the other hand, if |
| kind. Every personal debt that you incur | | | | most of your friends earn a lot less than |
| reduces your net worth which could have been | | | | you, 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 like | | | | pattern of putting your credit card down to |
| putting a large hole in your wallet. In the | | | | pay for dinner and they'll all say they'll |
| money-game, a huge transfer of wealth occurs | | | | pay you back later, but 50% of them never do; |
| between the 'Haves' and the 'Have-Nots' over | | | | and they don't mind taking advantage of you |
| the words, "I can afford that monthly | | | | because, after all, you earn a lot more than |
| payment." Here is a hint: the "Have-Nots" are | | | | they do. Or, you and your friends need to pay |
| the ones who make that statement. So please | | | | a deposit for renting a house and they expect |
| don't ever look at whether you can afford a | | | | you to write the checks because you have the |
| monthly payment to make a purchase; pay in | | | | money available and they do not. |
| cash after you've saved for the item. | | | | |
| [Everything that you buy with a 0%-interest | | | | The neighborhood that you live in also |
| payment plan must be over-priced. Behind the | | | | creates financial pressure to violate the |
| scenes, your payment contract is sold to a | | | | first two financial goals. Your neighbors are |
| lender with an interest rate, and retailers | | | | likely to become friends (and I've already |
| don't do this without building-in an | | | | gone over this), but they also influence the |
| acceptable profit for themselves. Ask | | | | size of your home, extent of your |
| retailers how much the item will cost if you | | | | landscaping, price of furniture, and the size |
| pay in full, and you could get a lower | | | | of 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 under | | | | rules, move somewhere more in alignment with |
| control. The first step in losing financial | | | | your financial goals. If your family and |
| control and spiraling into debt and money | | | | friends, don't measure up financially, find |
| problems is simply not dealing with personal | | | | some additional people to spend time with |
| finances. Prepare for catastrophic financial | | | | that have financial habits that you'd like to |
| accidents with health, life, disability, and | | | | emulate and learn from. I have friends with a |
| auto insurance. Plan and save before you buy | | | | wide range of income, but it is much more |
| something. Create a balance sheet for | | | | difficult to follow the first two money rules |
| yourself at least once a year to see how you | | | | when I am with the extremes from my own |
| are progressing. Pay every bill on time, or | | | | income. You'll just find it easier to reach |
| contact the creditor to tell them what is | | | | the next rule when the peer group that you |
| going on and make a partial payment. If you | | | | hang 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 trouble | | | | Add to your savings by increasing your income |
| is a trauma in your life. This can be a | | | | through advancing your career. It doesn't |
| health problem (large expenses or unable to | | | | matter whether you enjoy it; it is a means to |
| work), an emotional problem (divorce or loss | | | | an end - with the end being progress toward |
| of loved one), or a financial problem (losing | | | | the fulfillment of rule #1. Increase the |
| a job, cut in pay, relocation, unexpected | | | | amount that you save by aggressively lowering |
| expenses). Whichever the source may be, it | | | | four of your highest expenses. Start spending |
| leads to three emotional problems: the first | | | | time 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 causes | | | | wealth the fastest. The combination of all |
| people to not open their mail and continue | | | | four of these rules will hopefully offer a |
| spending as usual, and being overwhelmed | | | | next-step for you to take today to start |
| paralyzes people from getting assistance and | | | | getting more 'wins' in the money-game. |
| dealing with the situation. For example, if | | | | |