Rules of Wisdom

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I wish, when I graduated college, someone sat me down and gave me a list of useful financial advice. Unfortunately I had no role models in this area of my life.

Cash flow is more important than net worth. Your financial goal should be to create assets that generate steady income. Save more than you earn. This comes under the “no duh!” category, but unfortunately the general public does follow this basic rule.
Investments should generate more than 4% interest annually. If long term investments are generating less, the money should be moved to another asset.
Investing isn’t difficult, and can be as complex as you want it to be. What you don’t have a PhD in economics? Opening a CD at a bank is investing. See that wasn’t so hard.
Slow and steady wins the race. As a child you’ve heard the story of the tortoise and the hare, same thing applies to investing. Don’t go after the hot stock tip or trying to chase last years returns. In most cases you’ll loose. Be consistent in your savings and set specific goals.
Owning a business is one of the best ways to become wealthy. While not for everyone, if you have the entrepreneur spirit, it can be one of the most rewarding things in life.
No one cares more about your money than you do. The common joke heard about brokers “why are they called brokers? because they are poorer than you are.” While you may find an honest person that truly cares about you, in the end it’s not their money. They will still get paid even if you don’t have enough money for retirement, or for your son’s college education. This not only applies to advisers, but also our government. Don’t assume the government is out for your personal best interest with rules and regulations. Buyer beware applies to investing in anything.
Invest in what you know. If you don’t know enough about a specific subject, either learn more about it or hire someone who knows more than you do. Worst case use an ETF for that area. Don’t invest in some hot stock tip a buddy of yours told you on the golf course. “It’s gonna go up 35% in the next few months.” Yea right..
Minimize your taxes. The tax man will ruin your investments. Your goal should be to minimize your tax expenses legally. Don’t think you’re being patriotic giving the maximum in taxes to the government. Take the difference and give to a charity instead. Maximize things like 401k, 529s, mortgage interest, own a business, etc. Hire a tax professional to your team of advisers.
Proper asset allocation is critical.
Not all debt is bad. With the likes of Suze Ormann and Dave Ramsey, they recommend having no debt. I disagree, leverage if used properly and carefully is one of the critical ways of getting wealthy.
Have a good credit score. Understand the importance of building credit so you can be lent money on good terms.
The so called experts… aren’t. What CNBC, Fox Business, anything you read on web (including me!) as color commentary. It’s no different than what you see in professional sports. Take it as opinion not as gospel.
In most cases you are best investing in indexed based mutual funds and ETFs. History and statistics have shown over 70% of fund managers trail the index of the long haul (10 years+). It’s much harder to find the next hot mutual fund manager that will beat the S&P 500. Does it makes sense to invest directly stocks? Yes, but a small portion of your portfolio.
Investment expenses matter, a lot!
Inflation is a hidden tax. Inflation sucks the life out of your investments, what on paper might look like a great return only to look bad with real inflated dollars.
Buy and hold for the long term, anything else is gambling. The more you trade, the more investing becomes gambling. While I’m not against gambling per se, you might as well go to Las Vegas and bet on black at the roulette table. Like in a casino your odds of success decrease the more you trade.
When you buy a stock or bond of a company you become a part owner in that company. This is another “no duh”, but hear me out. As I mentioned before about investing in what you know, the same applies to purchasing stock in a specific company. In my case I know a lot about technology companies and invest in companies I may use their product daily. Warren Buffet would never invest in say Google, because he does not understand it. Keep in mind also what may be a great company to buy a product or service from, may not be a great investment. They can be mutually exclusive. If you took money of yours to invest in your own business would you not try to understand every aspect of that business? The same should apply to any specific company investment. Read their financial statements, visit their store, buy their product, read news articles, etc. While you are looking towards management for their expertise to run the company, make sure their actions make sense to you.
Have at least 6 months of emergency savings. As many Americans have found out over the past 18 months, many are just a two weeks from bankruptcy.
Protect your assets from legal disputes. This is something I am starting to get more involved in and researching into protecting my assets. This means corporations, trusts, estates, and wills. Unfortunately we live in a litigious society and you must protect your assets from legal battles.
Typically the higher the return, the higher the risk. While there are things you can do to to help minimize the risk of higher return investments, this statement is generally true.