These books all tell you the same thing. Oh, they may have a different twist or two; something you’ve never thought about or they may use a new word they’ve made up and copyrighted. But one thing’s for certain, the principles of financial success haven’t changed much in thousands of years.
That doesn’t necessarily bode well for the financial gurus selling those books! But we can’t deny the fact that “there is nothing new under the sun” especially where it concerns personal finance. The main difference in each of these personal finance books is the approach each one takes and the motivations they provide. That is literally the biggest difference in virtually any generic personal finance book you read – the approach and the method of motivation.
The principles of financial success
- Spend less than you earn
- Learn to earn more
- Pay off high interest debt
- Build an emergency fund
- Max out your retirement savings
- Reduce your taxes legally
- Invest your money sensibly
- Live wisely
Spend less than you earn
This principle is listed in virtually EVERY personal finance book and the reason? It’s the basic foundation of financial success. Compare how much you make to how much you spend and hopefully there’s a gap. If there isn’t, you’ll have to either increase your income or decrease your spending … or both.
Learn to earn more
It’s hard to get ahead by just spending less. You’ll need to earn more money eventually and there are dozens of ways to earn more money if you’re willing to give it a try. And new ways to make money pop up all the time.
How’s this for a way to make extra money? My daughter has a friend who rented a meeting room at a local hotel, brought in a DJ, and then charged his friends $15 each to come to the party. Over 260 people showed up. The DJ cost $300 and the room was $150. You do the math, but to my way of thinking, this is a smart young man who sees a need, fills it, and profits.
Pay off high interest debt
The Internet is full of fantastic examples of people who paid massive amounts of debt in relatively short periods of time. It all depends on your personal motivation level and your willingness to use self-discipline. I personally paid off more than $120,000 in debt in just 52 months (a little over 4 years). My wife and I were INTENSE fanatics about getting that debt paid! How intense are you?
Build an emergency fund
Again, look to the Internet. Like me, tons of other writers have extolled the virtues and the peace of mind that grows when you have a safety cushion called Emergency Fund. How much you keep in it is up to you, but I personally recommend no less than 6 month’s living expenses. Notice I said living expenses – food, shelter, transportation, insurance – and that’s it. No private school, no dining out, no new clothes, no gifts, nothing but what is absolutely necessary to keep you afloat. You’d be surprised at how little you can live on when you HAVE to.
Max out your retirement savings
Once you’ve gotten your debt paid off and have a cushiony safety net, the next step is to max out your retirement savings. If you meet the qualifications (most people do), head over to Scottrade or better yet, optionsXpress (it’s cheaper) and set up a Roth IRA. You don’t get any tax savings now with a Roth, but your earnings are tax free once you reach 59 1/2 years old.
Reduce your taxes legally
Have you ever read about those incredibly rich people at the turn of the century? People like John Rockefeller, J.P. Morgan, Andrew Carnegie, and the Vanderbilts had an advantage you and I don’t have – there wasn’t an income tax back then and even when it DID become enacted in 1913, only those with incomes over $450,000 (inflation adjusted) had to pay … one percent. The highest rate was 6 percent on incomes over $11 million plus!
Invest your money sensibly
The best way I’ve found to invest is to regularly put cash into a savings account, then when you have $1,500 to $2,500 saved up, move it to your online brokerage account and invest it (read How a Second Grader Beats Wall Street). How does a second grader beat the Wall Street moguls – by investing in broad based exchange traded funds that put money in stocks, bonds, and even commodities based on your own tolerance for risk and volatility.
Of course, if you’re uncomfortable making your own investment decisions, make sure to a financial advisor.
Living wisely means living frugally – but not living like a miser. While it’s true that you don’t “save yourself to wealth”, it makes no sense to wantonly waste money on things you don’t need or on things that won’t hold their value or will break shortly after purchase.
Living wisely means using banks for the debit card rewards, writing a will for your heirs, living your life on a budget, and maintaining the proper amount of life insurance, car insurance, and homeowners insurance. It means maintaining your credit report and understanding your credit score and what impacts it.
Living wisely means managing your money in a way that allows you to bless others, and take care of yourself and your family.
Principles are timeless
Principles never change. If you want to avoid reading all the books in the picture above, just remember to:
- Spend less than you earn
- Figure ways to earn more
- Pay off your high interest debt
- Build an emergency fund with 3-6 months of living expenses at a minimum
- Contribute as much as possible to your retirement savings
- Reduce your taxes legally
- Invest your money sensibly, either on your own or with an advisor
- Live wisely and frugally