In the complex financial times we live in, the last thing you want is to rely on the obsolete advice that demands you get a job, hold on tight, and hope for the best. Today, you want to establish reliable saving habits and sound investment practices to guarantee solidify your future prospects.
After interviewing a dozen or so wealthy banking experts, their advice seemed to boil down to three principles that originated in classic investment literature. And that lead to a profound realization. Most people look for the magic bullet or the next advanced tactic or the next edge, but the reality is that most of the results come from the fundamentals. And people ignore the fundamentals and skip straight ahead to the magic bullets.
The experts we interviewed attributing a majority of their financial success to these three timeless pieces of investing advice:
- Pay Yourself First and Don’t Forget to Make It Automatic
The advice that dictates you pay yourself first was first mentioned in George Samuel Clason’s personal finance classic, “The Richest Man in Babylon??? which was first published in 1926 and is based on advice derived from ancient Babylon.
So, why would advice popularised more than a few decades ago, and which is based on stories that are thousands of years old still be relevant today?
Because it works! That’s why!
Think about it: you need money to invest, but what happens when you receive your paycheck? You pay the government, the grocer, the insurance man, the schools, the plumber, the bank, your landlord if you have one…in other words, everybody, but yourself. In the end you save whatever penny is left and hope to do better with the next paycheck.
The principle of paying yourself first dictates that you set aside a fixed percentage of your income each month before you do anything else.
To make this habit easier you can make the payments automatic from your bank account to an investment or savings account. That way, you never have to think about it or even contemplate about changing your mind.
The next question you should be asking yourself if where can you deposit the money. Generally, consumers will find themselves asking one of two questions “which bank is the best bank near me???? and “which credit union is the best credit union near me????.
The reason we bring this is up is because there is an important difference between credit unions and banks that you have to understand.
To begin with, banks are for-profit organizations that offer a wider scope of products and services. They also tend to be nationwide. If you’re someone who travels and are looking for more complex savings options than just a simple savings account, then a bank might be the right pick for you.
On the other hand, credit unions are nonprofit organizations that exist to serve a local community. They tend to have less fees, less locations and less products. If you are just starting to invest, then placing your money in a credit union might be the more profitable option.
- Keep Aside An Emergency Fund
The basis of any sound financial plan is to be prepared for the unexpected. That’s why experts agree on the absolute importance of creating an emergency fund to keep you afloat during unforeseen circumstances like sudden illness or sudden unemployment. The only thing experts don’t agree on about the emergency fund is the amount to be set aside.
As is common with personal finance, there can be no one size fits all answer; but if you are single and without a family you want to set aside at least 3 months of your income for the emergency fund, while if you have a family you want to save at save as much as 10-12 months worth of your savings aside for emergencies.
It goes without saying that the emergency fund should never be touched, except in the case of a real emergency. Ideally, you want to create a separate account for this fund to avoid the temptation of dipping your hand into it unnecessarily.
- Come Up with a Game Plan and Stick to It
Once you come up with a plan for investing, be sure to stick to it. Keep your emotions aside, and ignore whatever the headlines say. Stick to your plan and save yourself a world of heartache.
In Benjamin Graham’s classic book, “The Intelligent Investor???, the story is recounted of how Sir Isaac Newton, unarguably one of the smartest, most celebrated scientist to ever walk the earth, took a massive hit in the world’s first ever bubble (The South Sea bubble) because he allowed the headlines and the enthusiasm of the investment climate of his day to override his massive intellect and common sense.
The great man lost a fortune (about $6 million in 2017), while the rest of the world learned a valuable lesson: an investor’s worst enemy is often himself.