Today we are talking about the rules of money. These nine rules of money are essential to your success in achieving financial freedom. These rules of money will help you make more money as well as keep more of your hard earned money. Here are the fundamental rules of money you need to live by if you want to become rich and make more money.
1. Gross does not equal Net
Most people neglect to factor in the taxes paid on capital gains. For example, stocks. Any profit you take from the sale of a stock held for at least a full year is taxed at the long term capital gains rate. Short term capital gains are taxed as ordinary income, something many investors forget. You pay significantly more in taxes as a short term investor. Make sure you are keeping this in mind, and considering what your post tax return is on an investment.
#2 Pay attention to expenses
Most investors do not understand the total costs of the investments they own. They believe the expense ratio is the only thing they pay. This is largely false. There are a countless number of other fees associated with many mainstream investments. We will be discussing these in the video.
#3 Understand the value of something before you buy it
Price and value are two different things. Price is not determined by value. Price is determined by the market supply and the market demand. A high demand for a product inflates the price, while a large supply of a product deflates the price. Value, on the other hand, is the estimated monetary worth of something. No matter what you are buying, consider what the value is.
#4 Follow the strategies of money
Many of the old strategies for accumulating wealth still hold true today. Instead of carving out your own path, consider following the strategies of those before you. Following the strategy of a successful person is a great way to become successful yourself.
#5 Always keep some cash
Every financially responsible individual has a rainy day fund. This could be money parked for an investment opportunity or an unforeseen expense. One of the worst situations you can be in is needing cash and having none. For example, if you are too heavily invested in the market and an unforeseen expense arrives, you are forced to sell regardless of the market conditions. At this point, you are not in control of your investments.
#6 Buy what is on sale
Whether it is a stock or a bottle of laundry detergent, buying on sale is a winning strategy. If you understand the value of a company, and feel that the current price for ownership is less than the monetary worth of this company, you can make a profit when the price normalizes.
#7 Don’t be afraid to lose it
There is no such thing as a free lesson out there. If you want to learn something, you typically pay money to take a course on it. Every time you lose money, you will learn a lesson. If you are afraid to lose money, you are missing out on valuable lessons.
#8 Never waste it
This rule is very simple. Don’t waste money! Many people spend money on unnecessary luxuries. Money being wasted or spent mindlessly is money that could be directed towards your goal of financial freedom. If you are constantly wasting money on luxuries like prepared food, first class travel and impulse buys you are prolonging your journey to financial freedom. Once you understand the price versus the value of something, it should be easy to determine when the price exceeds the value. Comfort and convenience are expensive, and the price exceeds the value.
#9 Money follows money
Wealthy people have an unfair advantage. They are able to put their cash to work. The wealthiest individuals put the majority of their savings into investment assets. Most middle class individuals have their money tied up in their homes or sitting in a low interest savings account. Those who are smart about their money become rich. These are the same people who have dedicated time to understanding the ways they can put their money to work. It is no coincidence that the rich are getting richer and the poor are staying poor.
