Rules For Attaining Financial Success
Pay yourself first! That is, pay toward savings, investments, IRA's, emergency funds, nest egg, etc. Some recommend 10% of your gross pay.
Spend less than you earn. Don't let your spending rise to meet your income.
Don't invest until you have an emergency fund set up (so that you will not have to sell an investment at a loss when you need money quickly; three months of living expenses generally recommended), your debts are paid, you have adequate insurance coverage, own a home, and take advantage of tax-sheltered retirement programs.
Establish and maintain good credit.
Prepare and use budgets, balance sheets (net worth), and income statements (cash flow).
Control and reduce spending. Like control how much you eat out.
Learn to be a saver. Save consistently and constantly.
If you are young, have a 60-hour work week. Get that part-time job. Get a head start.
Diversify and balance your portfolio (asset allocation). For example, your investments should have different types of risk. Or invest in a mutual fund or similar that diversifies its assets this way.
Long-term investors always beat short-term speculators.
Use dollar cost averaging with your investment plan where appropriate. This means invest a fixed amount regularly rather than try to time the market, etc.
Watch key indicators (prime interest rate, etc.).
Understand what your risk tolerance is before investing.
Don't be afraid to take reasonable risks.
Take a course in personal finance.
Set realistic financial goals.
Always keep in mind the effect of fees and commissions on your investments.
Be responsible for your own tax reporting. Paying someone else to do your taxes effectively increases your tax bill, and it sacrifices an opportunity to gain financial competence and confidence. Learn about taxes and always minimize your tax burden by sheltering income in retirement plans, IRAs, annutities, etc. Take advantage of all tax benefits (i.e., owning a home). And learn to do withholding to match your actual tax liablility so that you can budget more effectively and avoid the need for a refund, basically a free loan to government.
Find an investment strategy that works for you and stick with it.
Remember this: No one can time the stock market in the short run.
Learn early on that you can't get rich quickly.
Avoid hot tips.
Do not get involved in futures, commodities, penny stocks, collectibles, new issues, limited partnerships, or other non-traditional investments.
Avoid using margin.
Use credit wisely (buy appreciating assets like a home, home-improvement, jewelry, etc. on credit but not depreciating assets like cars, clothes, gas, food, etc.). Borrow only as much as you can afford to repay.
Read at least one financial newspaper regularly and subscribe to at least two financial magazines.
Take full advantage of all retirement plans offered to you. Invest the maximum amount that your employer will match if they have a matching program. That's free money. Do be aware of fees that you may be paying when participating in your employer's retirement plan: A Look At 401(k) Plan Fees from the U.S. Department of Labor.
Don't let money control you--you control it!
Make sure you consider estate planning during your lifetime.
Never allow assets to remain idle.
Avoid scams and ripoffs.
Keep good financial records--especially a balance sheet (net worth).
You are your number one income-producing asset. Get a good education and keep learning. Treat yourself well. Do not abuse drugs and alcohol. Always wear your seat belt.
Always strive to have a second source of income via a part-time job, etc.
Avoid credit cards if you are not absolutely certain that you can pay off a credit card in full each month. Use a debit card instead of a credit card. This will debit your existing money rather than future money. Using a credit card and paying the balance in full each month can help to establish a good credit history, but it is not worth the risk to your credit history if you cannot make payments. And if you do decide to get a credit card (link to Federal Reserve Board: Choosing a Credit Card), avoid getting more than one or two as multiple lines of credit can negatively affect your credit score.
If you run into problems keeping debt payments up to date, discuss them immediately with the institution you borrowed from. They may agree to work out a modified payment plan with you.
Obtain and review your credit report yearly.
Enjoy the fruits of your labor and investments.