A wise man once said, “money is a great servant, but a bad master”. One of the ways to guide yourself to a successful financial management system is to create a rulebook or a guiding system by which you will be the master of your money. Let us look at a few rules you might want to include in your rulebook.
The first rule is undoubtedly The Productivity rule. Money comes to those who work hard and work smart. You have to work hard enough to make sure that money comes to you according to the systems you have set in place. You need to find a way to create multiple streams of income.
The second rule, of course, is the pay yourself first rule. According to George Clason who wrote the 1926 classic, The Richest Man in Babylon, this is the rule responsible for building wealth. Anyone who does not apply this rule in their financial game will not build wealth. You dedicate a percentage of your income and you consistently and religiously put it away.
It is not saving for saving’ sake. As Loral Langemeier, author of The Millionaire Maker puts it, you save this in your “Wealth Account”. You will use this money to invest in projects that will build your wealth. While you are saving this money, you are constantly looking for wealth building projects.
The third rule has to do with how you manage Other People’s Money. You must have the Debt Management rule. This rule helps you to work with debt, or other people’s money. You set your own boundaries. How much short term, medium term, or long term debt do you want to be exposed to.
What should your exposure be to credit cards and overdraft facilities? How much personal loans do you want to have? Set a limit based on your earnings and objectives, not based on what the lenders say you qualify for.
How much mortgaged finance do you want? Remember, your house is not an ATM, so don’t be constantly withdrawing money from the equity; unless it’s in line with your objectives that will increase your wealth. Always make sure that all your borrowings are in line with your set holistic objectives, and that you are building wealth. You create these debt policies so that you know whether you’re on track or have exceeded your limits, and by how much. If you are overexposed, what is your plan for getting back on track? Is your debt consuming you or is it stepping stone to growth?
Your next rule is invariably your investment rule. This is the rule that guides you to growth. Which classes of assets do you want to invest in? Do you understand these classes or are you just following others? It was George Clason who warned about people who invest in things they know nothing about. They almost always lose money.
Your next rule covers your protection and insurance policy. There is no point having all these assets if they are not protected against their own inherent risks. A car’s inherent risk is accidents on the road. A house’s inherent risk is damage and destruction. A business has its own inherent risks, depending on the sector of the economy it operates in. To your success! Follow us on www.thegoldenruleblog.wordpress.com or on twitter @101silverline