by Janet Grischy

Created on: July 20, 2008   Last Updated: April 08, 2010

Your ultimate goal is to invest, and invest wisely, but there are rules to follow to get to that point.

Save

The first rule is to spend less than you make. Mathematically, this is not at all hard. You know what you bring home, so you know what you can spend. The difficulty is not in the math. The difficulty is human psychology, which makes us want what we see, and lets us rationalize our wants into needs. Once you figure out why you overspend, you will be able stop. Start salting money away.

Borrow wisely

On the other hand, some debt is good. The classic example of positive debt is the home mortgage. Assuming you buy within your means, this debt is the route to wealth. The government encourages home-ownership, by financially benefiting homeowners. These benefits will help you save money on your taxes now, and protect your profits when you sell years from now.

This does not mean you should spend big to add a screening room to your home. Most money spent on remodeling won't come back. Do spend on maintenance though. Another good use of debt is for education.

Educate yourself

An education is crucial, whether it is from the local city college, a union apprenticeship program, adult education, or an ordinary college. The more you know, the more you'll earn. Once you have a valuable skill, be sure to polish it with practice and regular updates. If you have to change careers, research the fields that are paying well, as well as those matching your interests and timetable.

Bill Gates, who dropped out of Harvard, is the famous counterexample, and there are others. No one can call the man who started Microsoft uneducated, though. The point is to gain knowledge and experience, in a way that will be financially useful. For example, anyone can go to MIT online free. No credit, no degree, no cost, just pure knowledge.

Stay stable

Another important rule for financial success is to keep your life as stable as possible. There are upsets and setbacks in every life, but the important thing is to keep plowing along toward your goals. This means having a peaceful orderly home life, good relationships, and ties to your community. Split-ups are expensive and painful, so tend your relationships. You should also be generous, to the extent you can. Someday someone may be generous with you. Moving is also expensive and disruptive, so it doesn't make sense unless there is an overwhelming advantage elsewhere.

Of course, if there are no good jobs where you are, you'll want to go find one. Get the job before you make the move though. Search online, there are many sites dedicated to such hunts, and ask friends and family.

You also want your life to be one of moderation. Drugs and alcohol are expensive distractions, and when mixed with cars can be unbelievably costly. Surely you have seen people who found financial ruin in an excessive lifestyle.

Invest

Once you have saved an emergency fund, have adequate but not excessive insurance, and have opened tax-advantaged savings plans, you are ready to invest. Plan carefully, think as clearly as you have up to this point, diversify, and you won't just be fine, you'll be golden.

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