With all the conflicting financial advice you get from television, magazines, newspapers, and the internet, it’s easy to conclude that personal finance is roughly as difficult as putting a man on the moon; however, nothing could be further from the truth. Fact is, the financial media has a vested interest in making things seem hard. If their readers/viewers knew just how easy it is to save and invest their hard-earned money, they might conclude they don’t need any professional help at all. Of course, then their ad revenue would plummet and they’d all be out of a job, and we can’t have that, can we?
Easy As One, Two, Three
Pretty much everything you need to know about personal finance can be summed up in three rules. Sure, you could do hours and hours of research into advanced investing techniques, but these three simple rules will get you 95% of the way there.
- Spend Less Than You Earn – Sounds obvious, right? Well then how come the majority of people just don’t do it? It doesn’t matter how high your investment returns are if you never have any capital to invest. First things first.
- Higher Returns Mean Higher Risk – If there is one immutable law of the financial universe it’s that you can’t get higher returns without taking on higher risk. Stocks generally outperform bonds and savings accounts over long periods of time, but that extra return comes only at the expense of extra risk. Anybody who promises you high returns with little or no risk is a con artist. There are no exceptions to this rule.
- Costs Matter – How do you ever expect to get rich if you’re constantly paying fat commissions to snooty, know-it-all financial advisers? Investing isn’t complicated and you don’t need help outside what you can get for free at the local library. There are literally hundreds of good, easy-to-understand, popular personal finance and investing books out there. Read a few of them and I promise you’ll do at least as well as the guy in the corner office with the expensive financial adviser.
Estimated reading time: 2 minutes