Investing can be a complicated process, even for experienced investors. For beginners, it can be an overwhelming experience that is attractive yet scary. Since some of the most rewarding investments carry a high risk, it is a good idea to consider a prudent approach when making your first few investments. Using these five rules, it is possible for you to make an informed decision and minimize mistakes. Consider each law carefully and see how it applies to your current needs:
1. Give yourself a raise. 10% of your net income should go on auto-deposit into your , health savings account, etc. It’s tax deductible. Pay yourself now, or pay the IRS later. If you invest right, your nest egg should earn 10% while you sleep, meaning your money will be worth more than your salary in seven years and will out-earn you in 25 years.
2. Be charitable. Tithe 10% to charity. Fuel your favorite cause with your cash, take the tax write-off and reap the benefits of helping your community and networking with others who have like-minded goals! Pay your favorite charity now, or pay the IRS later. The best, highest paying jobs that I’ve ever had came from the relationships that I developed through my charitable giving.
3. Educate yourself, your family and others. Education is the single highest correlating factor with income. PhD’s, medical, business and law students often sleep on a couch (or small dorm rooms) for years, in order to earn double the income for life! It’s even easier to get an education now with flexible programs to obtain a masters in finance online.
4. Have fun. Health is wealth. You can’t earn a great living if you can’t get out of bed. And pleasure is a free endorphin that releases anti-oxidants that keep you healthy and sexy. What a beautiful reason to have some fun today!
5. Double your pleasure. Double your fun budget! Make sure that you are spending 20% of your income for FUN. You are worth it! I take 10% out in cash and spend it until it’s gone. The other 10% I save up for a year to do something really adventurous that I can enjoy with my family and friends.
6. Stop complaining. Some people say, “I spend my fun money on my home.” That’s cool, but then stop complaining that you don’t take vacations and start enjoying your home more. And if your home is costing you an arm and a leg, then what kind of a way is that to go through life. Get creative about reducing your big-ticket items and you will find yourself with a lot more dough to thrive on.
7. Basic needs must be under 50%, including taxes. Suggested formula: income – tithe – savings = expenses. Take a control of your wants and stay focus on your needs.
8. Think partner, not competitor. By teaming up to put everything you need in one place, puts all of the greatest bands in one spot for an entire weekend. What can you do to partner up with your competitors and create a win-win for everyone?
9. Dream bigger. Sky is the limit, dream big together with your family, anyway it’s priceless. Building wealth requires a lot of discipline and time.
10. Investigate Before You Invest. Never put your money into something you do not understand. Although it could be rewarding, such as if you invest in something that has an incredible growth potential and sustainability (Google and Microsoft in the early days come to mind), but many types of investments also carry a large amount of risk. Furthermore, the less you know about the company, product or industry, the less likely you will understand how it works and what types of factors can affect it in a negative way. Spend time studying the type, nature and background of the specific investment you are interested in before you make your decision.
11. Establish Your Safety Margin. A safety margin is a measure of protection against risks that can and will affect your assets in a negative way. If you invest without setting up a margin of safety, you could end up having some seriously impaired capital. To protect yourself and your hard-earned investment, consider the difference between the price of the stock and the intrinsic value. Theoretically, when the price of the stock is lower than its intrinsic value, it has a better margin of safety and greater resiliency against future downturns and is therefore relatively safe to invest in. This is simple arithmetic but can prove useful especially for beginner investors.
12. Do Not Lose Money .The one sure thing about money is that you can lose it and quite easily at that. If there is one law you need to write down right now so you are reminded everyday, this is it. Marvin Davis, a self-made billionaire, adheres to this law and recommends it to other investors. For him, it is prudent to keep your money in your bank or wallet if there is any possibility that you’ll lose it. The law is simple: if you think you will lose money, then you will. Try to be on top of the game all the time and learn everything you can in order to keep and grow the money you have. Be smart about what you do. Keep in mind that the money that leaves your hand so you can invest is money you could lose that will end up in someone else’s hands.
13. Don’t Let the Hole Get Too Large. If you lose, then lose only a few small ones. Don’t wait out a declining investment just so you can prove your theory right. If you have a loser, cut it or it will bring you down with it. Never spend more money on something that is obviously going down the drain. If the upside is limited and the downside is unlimited, do not stick around. Let the winners ride but eliminate the losers for your own good.
14. Risk is Not a Number. Building wealth requires a lot of discipline and time. Time, not timing is the smooth way to build wealth for your family.
Many first time investors (and a few experienced ones) make the mistake of ignoring this law, focusing on the aspect of risk that is represented by a numeral or percentage point. This part may be true but risk is also the loss of capital – your capital – and this loss tends to be permanent. True, risk does and can create opportunity but it can also erode your capital just as effectively. Risk is usually associated with common investing mistakes such as failure to calculate intrinsic value, purchasing a high-cost asset or exiting a position prematurely, so watch out.
Steve Jobs, the rock star of Apple Computer and iTunes, slept on the floor of his friend’s dorm room to crash college calligraphy courses before founding Apple. The chairman of an $11 billion company once slept on his parent’s couch while educating himself to make the transition from football coach to CEO. And one of the richest women in the world, J.K. Rowling, received public assistance while she created one of the most beloved stories of all time – Harry Potter.
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“No matter how many books you read, nor thousands of good advisers you’ve heard, without an action and execution is USELESS. You will just keep on analyzed those things until you paralyzed or just a history. Sometimes what’s between your miracle is your First STEP.” ~Robert Kiyosaki
Enjoy learning and happy investing!
For more info visit: How to Grow Rich www.thesimpledollar.com by Joshua Turner
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