Simple ‘Golden Rules’ To Successfully Manage Your Finances For The Rest Of Your Life

There is no magic pill, no single most effective rule. Neither is there just one single food to nourish your body to health.

Instead, there are a few simple golden rules that I found to be effective:

1.) “Don't save what is left after spending; spend what is left after saving,” said Warren Buffet. Follow this one simple rule and you will substantially increase your odds of reaching financial independence during your lifetime.

When I started in the US many years ago my limited income was offset by my resilience, curiosity, and willingness to learn new skills. I mastered the art of living within my means. I divided my income into three categories: a) housing, b) food & transportation, and c) funds to aggressively invest. I established my minimum amount of what I needed each month to pay for a) & b). Everything else went into saving and investing.

Before investing, you must first adopt a few golden mini rules and follow them without fail:

- You must always pay off all credit card balances in full every month. Never carry a balance to the next month.

- You must mark payment due dates on your calendar, so you never get charged a late fee. Carrying a balance is like swimming across the river with bricks tied to your legs. Paying off all credit card balances in full every month gives you a guaranteed rate of return equal to the interest rate on the credit card you would otherwise be paying.

- You must have at least 6-month emergency fund reserves.

- You must always pay your taxes on time and never incur a late fee or penalty.

Once you got these golden mini rules covered, you are ready to invest:

2.) “Invest in investment books so that you may learn to successfully manage your money for the rest of your life.” Most people spend more time and effort planning their summer vacation than planning their retirement. This is not rocket science. It is a crime they don’t teach this in high school. Learn the basics. Here are a couple books to start:

The Little Book of Common Sense Investing, by John Bogle

99 Minute Millionaire, by Scott Allen Turner

3.) “Maximize your retirement account contributions.” If your employer offers a 401K plan, max out your allowable contributions. If you are lucky and your employer matches contributions, take advantage of it. 100% matching contributions are an instant 100% guaranteed return on your investment. This is huge. Otherwise, max out your SEP IRA, regular IRA, and Roth IRA contributions.

4.) “Don’t delay! Start investing today and automate the process.” Set up automatic monthly transfers from your bank account to your investment account equal to a predetermined large percentage of your monthly paycheck. The money you make for your retirement is made in the early years. The more you save when you are young, the less you have to work later in life. Start today and never stop, even if you only have little to invest.

Dollar cost average into the market by investing a set dollar amount every month, regardless of share price fluctuations. Stick to your routine and keep steady. See related article: “How much money would you like to have in order to retire?”

5.) “Buy one more house beside the one you live in.” You will then have two homes paid off by the time you retire. The second home would pay a monthly rent that could sustain you for the rest of your life. This simple concept inspired me to invest in rental properties. I discovered, if one rental is good, ten or more rentals could be better. See related article regarding investing in rental real estate besides stocks.

6.) “Assess the risk and hedge against it.” Every investment opportunity comes with some associated risk. Instead of not investing because of the risk, establish how to minimize the risk. For example, just because stock values can fluctuate up and down, does not mean it is bad to invest. Instead, consider:

a) Broad diversification with owning index funds like the Vanguard 500 Index Fund VFINX mirroring the performance of the 500 largest US companies, or, the Vanguard Total Stock Market Index Fund VTSMX representing the total U.S. stock market. - I don’t get paid to endorse Vanguard. I just share what worked for me.

b) A long-term commitment. This will smoothen out the short-term fluctuations. Most 10-year and longer time periods have yielded substantial gains in the stock market, in spite of all the fear short-term fluctuations generate.

c) Carry sufficient insurance coverage and cash reserves when owning real estate and businesses. Be prepared for unforeseen circumstances and avoid costly entanglements like lawsuits, divorce, etc.

Final thought:

Most self-made wealthy individuals started with little and built their fortunes slowly over many years with a) owning profitable businesses, and or b) successfully investing in the stock market, and or c) real estate.

Talk is cheap. You need to actually do it. Your success will depend mostly on your mental flexibility to learn and adjust.

Learning how to invest so that your money can work for you does not happen overnight. It takes a regular plan, discipline, and time. You need to learn how to optimize incrementally. Seek advice from others that succeeded, leverage their knowledge and emulate what they have done.

Start where you are, focus on where you want to go and don’t worry about where everybody else is. Do the best with what you have and build on it. Track your progress. Analyze what works and what doesn't. Fine-tune and repeat.

Review and adjust your plan as you learn and grow. Use deliberate practice and improve on it. What others have done before, you can do too. Nobody starts at the top. Every new skill is hard before it becomes effortless. First, we crawl, then we walk, then we run.

Investing is like running a marathon. You relentlessly put one foot in front of the other in the direction towards the finish. Show up at the start and you greatly improved your chances to complete. Pace correctly and move forward until you reach the finish.

Jim Rohn said: "If you are not financially independent by the time you are 40 or 50, it doesn’t mean that you are living in the wrong country or at the wrong time. It simply means that you have the wrong plan."

Or, it means you started late. Get going right now! The future is surely going to come. Are you going to blame the past?

May you live well and prosper. ~ Mahalo & Aloha

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