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What You Didn’t Learn in School
Most schools don’t teach students about money management. Usually, people grow up with little knowledge of how to invest and get rich. Many spend most of what they make and have nothing left to invest even if they knew how to do it. Often, people take advice from the wrong sources and ruin their finances. However, it’s never too late for anyone to learn how to manage their money wisely by taking lessons from the right places such as this book that is written by an experienced author who has been teaching these things for years in his seminars and books.
To build your wealth, you should follow nine rules:
1. “Spend Like You Want to Grow Rich”
If you want to become wealthy, promise yourself to “do no harm.” Create “assets, not debts.” You should spend wisely, but you don’t have to scrimp. Growing wealthy requires a strategy. You must carefully watch how you use your money so that you will have some left over for investing in the stock market and creating an investment portfolio that can grow into something substantial over time with the right returns on investments (ROI).
2. “Use the Greatest Investment Ally You Have”
You may have learned about compound interest in school. You might find it boring, but the concept is actually quite powerful. Warren Buffett started investing early and credits that to compound interest. As he says, planning can make all the difference.
If you invest $100 and it grows at 10% annually, then in five years your investment will be $161.05. If the market continues to do so for 70 years, your investment will grow to approximately $78,974.69
Before you start creating a budget, keep track of your expenses for three months. After that period has passed, calculate how much it costs you to live every month. Use this figure as the basis of your financial plan. Pay off any high-interest loans first because those will have the highest impact on your finances in the long run.
3. “Small Fees Pack Big Punches”
It’s unlikely that you would be able to compete with experts in their field. However, there is one exception: money management. Many financial advisers only care about selling products and making the most money for themselves rather than providing good advice. For example, they might sell actively managed mutual funds instead of index funds because those are more profitable for them even though they’re not as good for investors.
To get better returns than most experts can provide, invest in three index funds: one from your country, a global stock market index fund and a government bond fund. Paul Samuelson, the first American to win the Nobel Prize in economics, says that purchasing an index fund provides you with the most effective way to diversify your investments. If you could ask Warren Buffet where he would invest his money if he were starting over again today, he’d say that he’d buy more of these same types of funds. He has instructed his estate’s executors that when they are finished paying all of his bills after he dies (including taxes), they should put the rest into more index funds like this as well.”
Studies have shown that you can’t pick the best-performing mutual funds by looking at their past performance. Therefore, you shouldn’t choose a fund based on its past success. Indexed mutual funds are better because they don’t rely on managers and will be more reliable in the future than actively managed funds, which depend on talented managers to outperform stock market indexes. You should remember that advisers get paid when they sell you a fund, so they’ll recommend an active one.
