Eight Core Principles For Managing Wealth

by Dual Income No Kids on February 7, 2009 · 0 comments

Hi All,

You’ve probably know this already, but some truths regarding wealth in American have been proven over time and bear repeating. So, if you are interested in creating wealth, it makes some sense to review these core principles.

1) Live within your means: You’ll get rich by imitating the mentality of the wealthy, not by emulating their spending behavior.

2) Focus on creating, saving and investing money: There are inherent behavioral differences between classes. The poor are focused on spending money, the rich are focused on making it and holding onto it. Besides just holding their money, the rich are looking to build and create wealth through a variety of means. Again, emulate the behavior of the wealthy, not the poor.

3) Plan your spending: The longer you plan your purchase, the more money you’ll save. This is because you’ll have more time to price compare and you’ll be less apt to buy on credit.

4) Save: Save at least 10% of your income. Invest your savings in something that will appreciate in value – such as real estate, stocks or bonds. The discipline of saving will build character and allow you to better handle the large amounts of money that will follow from the saving processes.

5) Use compound interest: If you have investments in cash accounts or you own stocks, please don’t forget to reinvest your dividends. Many brokerage accounts will allow you to do this free of charge, all you have to do is set your account specifications on-line. Dividend Reinvestment Programs (DRIPS) are a great way to do this. Even if you have $100 bucks you can get into this game. Right now, stocks are at all time lows, if there is a recovery then you might be able to profit.

6) Build an emergency fund: Have an emergency fund that covers your living expenses for three to six months. If something happens you won’t have to sell assets or beg your relatives or friends for cash.

7) Don’t try to beat the market or speculate: Instead, take a position in a company you think will do well. Some people say you should trust the long term ability of the stock market to deliver good returns, this might or might still be true. Regardless, stay focused on your own priorities and don’t try to beat the market.

8) Buy real estate: With some leverage and modest price appreciation you can build a fortune in real estate. It will take 20 to 40 years, but you can do it.

Best,

James

p.s. Hat tip to Tom Butler-Bowdon for this one.

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