5 Guidelines to Living a Successful Financial Life

September 9, 2014

Sometimes it's good to take a step back and look at your financial life from a simple perspective.  Imagine you were just beginning adulthood.  Follow these guidelines and you will stack the odds in your favor for a successful financial life.

Earn, Save, then Consume

It's surprising how many people do this in a different order.  Many people like to have the latest gadget, clothing, cars, furniture, jewelry and the like.  And that's OK as long as they have earned the money to pay for them.  But the availability of credit and pressure from peers, advertising and the like makes it hard to be a disciplined shopper.  

Live well below your means

Most wealthy people are wealthy because they didn't spend their money.  Some may have gotten lucky with investments or inheritances, but the great majority merely spent a lot less than they earned and invested the difference wisely.  Try to avoid committing to the most expensive house you think you can afford.  Bring lunch to work a few times a week.  Buy a one-year old car.  Be prudent every day.

Only borrow money for homes and maybe vehicles.

In our society, no one would think of saving enough to buy a house for cash when they are starting out.  Mortgage payments can sometimes be cheaper than rent.  Plus owning a home can lead you on a path to living mortgage or rent free in your later years.  That's a good thing.  Cars are big ticket items that are difficult to save for, so a loan is OK there.  But try to hold on to a car for a long time to try to reduce the average monthly cost of transportation.  Credit card debt? Uh, no.

Keep investing costs and taxes low.

Buy low cost mutual funds to invest all of those savings.  Keep an eye on tax effects of investments.  Fund retirement plans (IRAs, 401(k)s and the like) to the maximum.  The saved taxes will compound for a long period of time and produce a nice nest egg.

Insure against catastrophes

You need health insurance, car insurance, disability insurance, homeowners insurance. Optimize your deductibles against your emergency cash reserves.  If you have a family you probably need some life insurance.  Buy term life insurance.  Don't buy expensive policies pretending to be investments.  Insurance is insurance, not an investment.


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