The Four Golden Rules Of Personal Finance

Many successful people have mentors to guide themcheckbook and paying bills is not high in your priorities.
in learning the skills that lead to achievement, and I'llUnfortunately, tiny amounts of debt grow with
do my best to offer you some critical personalinterest and penalties into seemingly insurmountable
finance perspectives. They say that life is a schoolmountains of debt; leaving you with loathsome
where you learn the lesson after the test. The sameoptions such as bankruptcy, poor credit, declining
thing applies to money, but you can't go back in timelifestyle spending, and added stress that you bring to
to fix catastrophic financial mistakes that you haverelationships and work.
made over time. As long as you are alive, you are aRule #3 Pay attention to the finances of the people
player on the field of the money-game, and youwith whom you spend the most time. Whether they
need to know the basic rules before you get taggedare relatives, friends, or co-workers, these people
by the experienced players.have the most impact on your financial life. Do they
Rule #1: To earn money from money. The only wayconsistently follow the first two rules of the money
to escape becoming a wage slave for the rest ofgame? Do they earn about the same money as you?
your life is to set aside savings. The profit on yourIf the answer to either of those is "no", then I
savings can be used to increase your lifestylerecommend that you start spending a little less time
spending, reduce the number of years until you retire,with them; and this is why. If they don't consistently
or allow you to actually have any retirement at all.follow the first two rules, it is unlikely that you will
How are you doing so far toward saving and gettingeither. You unconsciously model the people around
it to earn money for you?you, and the more people you are exposed to that
Every dollar that you spend eliminates its ability todon't follow the first two rules, the more likely that
earn money for you in the future. I am notyou will unwittingly follow them. No one thinks they
recommending that you stop eating at restaurantsare 'trying to keep up with the Joneses', but we all
and going to movies, I am recommending that youdo it to some extent, and this is the mechanism. On
use some common sense, like looking at your fourthe other hand, if they earn a lot more money than
biggest expenses over the last few months andyou, you may rack up a lot of debt trying to keep
aggressively finding a way to reduce them.up with them (meeting them at their favorite
The biggest obstacle for the first rule is personalexpensive restaurant, joining them for another
debt of any kind (other than a mortgage for yourexpensive vacation, buying a new car because yours
home) or a lease of any kind. Every personal debtis the junker among all of your friends, etc.) On the
that you incur reduces your net worth which couldother hand, if most of your friends earn a lot less
have been working for you over your life time.than you, you will turn into the group's banker. For
Acquiring personal debt is exactly like putting a largeexample, you'll find yourself in the pattern of putting
hole in your wallet. In the money-game, a hugeyour credit card down to pay for dinner and they'll all
transfer of wealth occurs between the 'Haves' andsay they'll pay you back later, but 50% of them
the 'Have-Nots' over the words, "I can afford thatnever do; and they don't mind taking advantage of
monthly payment." Here is a hint: the "Have-Nots" areyou because, after all, you earn a lot more than they
the ones who make that statement. So please don'tdo. Or, you and your friends need to pay a deposit
ever look at whether you can afford a monthlyfor renting a house and they expect you to write
payment to make a purchase; pay in cash afterthe checks because you have the money available
you've saved for the item. [Everything that you buyand they do not.
with a 0%-interest payment plan must beThe neighborhood that you live in also creates
over-priced. Behind the scenes, your paymentfinancial pressure to violate the first two financial
contract is sold to a lender with an interest rate, andgoals. Your neighbors are likely to become friends
retailers don't do this without building-in an acceptable(and I've already gone over this), but they also
profit for themselves. Ask retailers how much theinfluence the size of your home, extent of your
item will cost if you pay in full, and you could get alandscaping, price of furniture, and the size of your
lower price.]TV. So pay very close attention to the finances of
Rule #2 Always keep your finances under control.your neighbors - if you don't like how they are
The first step in losing financial control and spiralingmeasuring up for first two rules, move somewhere
into debt and money problems is simply not dealingmore in alignment with your financial goals. If your
with personal finances. Prepare for catastrophicfamily and friends, don't measure up financially, find
financial accidents with health, life, disability, and autosome additional people to spend time with that have
insurance. Plan and save before you buy something.financial habits that you'd like to emulate and learn
Create a balance sheet for yourself at least once afrom. I have friends with a wide range of income,
year to see how you are progressing. Pay every billbut it is much more difficult to follow the first two
on time, or contact the creditor to tell them what ismoney rules when I am with the extremes from my
going on and make a partial payment. If you areown income. You'll just find it easier to reach the
temporarily unable to handle any of this, ask fornext rule when the peer group that you hang out
some help immediately and find someonewith aligns closer to your economic level.
trustworthy who will do this for you.Rule #4 Accelerate the other three rules:
The most common source of financial trouble is aAdd to your savings by increasing your income
trauma in your life. This can be a health problemthrough advancing your career. It doesn't matter
(large expenses or unable to work), an emotionalwhether you enjoy it; it is a means to an end - with
problem (divorce or loss of loved one), or a financialthe end being progress toward the fulfillment of rule
problem (losing a job, cut in pay, relocation,#1. Increase the amount that you save by
unexpected expenses). Whichever the source mayaggressively lowering four of your highest expenses.
be, it leads to three emotional problems: the first isStart spending time with people that talk about
denial, the second is being overwhelmed, and theinvesting money and are systematically building their
third is hopelessness. Denial causes people to notwealth the fastest. The combination of all four of
open their mail and continue spending as usual, andthese rules will hopefully offer a next-step for you to
being overwhelmed paralyzes people from gettingtake today to start getting more 'wins' in the
assistance and dealing with the situation. For example,money-game.
if you just lost a loved one, balancing your