Hi guys, today I’m gonna share with you my own rules about money that I will always follow. The reason why I have these money rules is that it keeps me from second-guessing myself when it comes to making decisions with my money.
And after reading this article, I hope you will take 1 or 2 rules or create a whole new rule for yourself to keep you accountable and help you make quicker decisions with your money.
Read also: 9 lessons that most of us learn too late
Without further ado, let’s get started.
1/ I never question spending money on education:
I spend a lot of money on education.
Even though I didn’t really go to a 4-year college, I do spend money signing up for online courses,
whether it is for personal development, personal finance, learning to invest in stocks, real estate, cryptocurrencies, learn about technologies, learn to code, learn to network, provide value to others
because I love learning new things, I love understanding how things work, how people think, and how to improve our quality of life as much as possible.
There’re many great online learning platforms now like Udemy, Coursera, Udacity and most of the courses are very affordable too.
There are even free classes offered by prestigious universities like Havard, or Stanford. The opportunities for education are endless, so even though you may not be in college anymore, that doesn’t mean you should stop learning.
And spending money on education is never a waste.
But, and this is a big but, there’re a lot of educators, wannabe coaches who claimed to have had thousands of successful students who have gone on to make millions of dollars after taking their $97 course.
This may be true, I don’t know, but before purchasing a course, consider doing some research about the person who’s teaching that course.
They may have a Youtube channel and you love watching them, so you may believe that their course is highly beneficial to you, go for it, but if you’ve just discovered a course that may seem a little too good to be true,
I would highly recommend spending maybe 1 hour researching what the course contains and whether or not that person has real credentials or achievements related to the industries you’re studying before purchasing it.
Of course, some of them will claim that they have made millions of dollars using this strategy or that strategy, but people make millions of dollars nowadays just for selling their courses on topics that they don’t have any experience with, so be aware.
The point is there’re good educators and there are bad ones, so if you’re like me and you love learning, you wouldn’t mind paying money for some courses that provide real value into your life, you must do your due diligence to make sure they deliver what they promise.
2/ I focus on paying off bad debt before saving:
Debt to me is scary.
The thought of having to pay more money than I spent because of interest just doesn’t make any sense for me,
So while I wouldn’t deny that I have borrowed money to pay for things, I only borrow when the interest rate is low or at zero percent and focus on paying off that debt as quickly as possible.
However, when it comes to debt, there are bad debts and there are good debts.
Bad debt is when you borrow money to pay for your liabilities like a new set of furniture or a car.
And good debt is when you use it to invest into your assets whether it is real estate or even cars if you purchase them to rent them out on Turo as a business.
With bad debt, you will use your own money to pay it off because the items that you have purchased using it do not generate income for you,
but with good debt, you get to purchase the asset using other people’s money and generate extra income from the items that you have purchased, so the win comes from all sides for you when you use good debt.
However, debt is still debt, while you may consider a debt is good when your assets stop generating income for you, it becomes a liability.
If a rental doesn’t have any renter living in it, it becomes a liability.
If a piece of new equipment you purchased using debt doesn’t generate extra income for you, it becomes a liability,
so while I try as best as I could to save money, I still put a higher priority on paying down debt. This gives me peace of mind, and it helps me sleep well at night.
You may have Grant Cardone’s tolerance for debt, you may love gathering as much debt as possible to buy more assets, this is completely fine in my opinion.
Each person has their own risk tolerance, yours is high and mine is low and that’s ok. But be sure to have money put aside in case something happens.
This leads me to the third money rule that I always follow.
3/ I always have at least 6 months’ worth of expenses:
The 6 months of expenses give me a thick cushion to fight off whatever financial setbacks life throws at me.
You never know what’s gonna happen tomorrow.
Today, you may be laughing, having a good time at your company because they have just closed on a big deal,
but tomorrow, things may change, the client may back out of the deal or your company has too much debt to handle which forces them to have to close down.
As a result, you have to find another job. While looking for another job, don’t put the stress of not having enough money to take care of your family as a burden on your shoulders.
Having 6 months’ worth of expenses is a good starting point for you to make sure you don’t have to worry about mortgage or rent, bills, or food while dealing with other aspects of your life.
This isn’t just applicable to your personal life though.
If you have a rental, having 6 months’ worth of rent and utilities wouldn’t be overrated
because your rental will inevitably be vacant at some point, and having 6 months of rent money put aside in case it goes vacant prevents you from having to pay the mortgage out of your pocket while still enjoying other benefits that real estate offers like asset appreciation, tax depreciation, and loan paydown.
But getting to that 6 months point is extremely, extremely hard, so…
4/ I also put a higher priority on earning more than saving more
There are two ways you can do to ensure financial success. You can always save money, right? It’s obvious,
but you could also earn more. I used to love saving more because it is the easier option of the two,
but the downside of saving more is that there is only so much you could save, right?
I mean no matter how good your saving ability is, you still need to take care of your essentials. So now, I put higher priority into making more versus saving more money.
Besides the benefit of having more money with making more of it, learning to make more expands my comfort zone.
It helps me think like a business owner by finding ways to increase my income, it also teaches me how to find the problems that people are facing and figure out the best solution possible.
In addition to that, making more can be rewarding especially when you try to jump over a huddle, and the result is what you expected or better.
It gives you this dopamine rush that urges you to find the next huddle to jump over. Plus, when I have a side hustle outside of my comfortable 9–5, I get to learn more about myself, I get to see how far I can go and what I’m capable of.
5/ Only invest in what I understand
Investing involves leveraging your hard-earned money to create more opportunities for you.
That is buying something at a low price, then selling it for a higher price when it appreciates in value.
The concept seems simple enough that even a 5-year-old could do it.
But in reality, investing takes time and dare I say effort because how do you know where the “low” price is, and where the “high” price is.
When looking at an investment like real estate, for example, you may think $100k for a flip is a good deal because you believe you can sell it for $250k after spending about $30k to fix it up, but to another person, $100k still seems high because they may need to spend more money to fix up the house and the resell value could be lower than $250k.
In my opinion, the true value of an asset is never true,
It depends on your strategy, what you plan to do with it, and your risk tolerance.
So in order to invest in something, you need to understand it, you need to know what your exit strategy is gonna be, you need to know how much you’re willing to invest, how much you’re willing to gain as profit, and especially, how much you’re willing to lose if things go south.
Just because you see a bunch of people buying a bunch of stocks of a particular company, it doesn’t mean you should follow them and start buying too.
Making investments I don’t understand is like going to the casino, all I could do is keep pressing the button until something happens.
I’m not gonna deny the fact that a lot of people gained a tremendous amount of money on risky bets, but most of them are early news catchers, they may know things before you do, or maybe they have a lot of money to spend, and they’re willing to lose the money they have invested if things didn’t go as planned,
but if you don’t have that kind of money to lose, if I were you, I would 110% spend my time studying and try to understand what I’m investing in, and invest in the long term.
That means more than 5 years regardless of the ups and downs of the market. And investing money long-term is my sixth money rule.
Read also: 7 habits of highly focused people
6/Investing long term:
Because when you invest your money long term, you get to enjoy the power of compound interest, which I talked about in my timing the market vs time in the market video.
So overall, my money rules are very simple:
1/ I never question spending money on good education:
2/ I focus on paying off debt before saving.
3/ I always have 6 months’ worth of expenses in my savings
4/ I also put a higher priority on making more vs saving more
5/ I only invest in what I understand.
6/ And I only invest in them for the long term, which is 5 years or more.
CONTRIBUTED BY Tien Nguyen
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