Four Fundamentals Of Financial Success
There are lots of things you can do to improve your finances. It’s pretty much common sense. However, let’s look at the big ones – what I call the four fundamentals of financial success. Read my ideas and let me know where you differ.
#1 – Zero Debt
In a world drowning in debt, you must have none of it, if you want a high degree of financial success. I’m actually going to throw in mortgage debt with this as well, since it’s such a common trend for people to live in giant houses they can’t afford. Zero debt, including no mortgage is a major milestone you should work towards and consider a major fundamental of your future financial success.
#2 – Putting Money Away, Generating SOME Return
Some people get way too caught up with maximizing their return, and while return is important, the more important aspect is that you’re putting large chunks of money away towards SOMETHING. Generate what return you can, but the key is to be putting massive amounts of money into savings and other assets.
Again, this is something almost all people DON’T do. The most that most people do is automatically transfer small amounts into a 401(k) or something.
#3 – Mitigating Risk
This is a tricky one because most people think that they are mitigating risk when in fact, they aren’t at all. Most people assume because you spread your stocks over a range of sectors like tech and consumer staples that you’re good to go. Absolutely not.
You need to mitigate way more risk than cyclical risk versus defensive sectors. You need to hedge against the stock market, currency risk, inflation risk, deflation risk, macroeconomic risk, income loss risk, etc.
You should have a range of assets: cash, stocks, maybe some bonds, precious metals, alternative assets, real estate, businesses, etc.
#4 – Steadily Increasing Income
Lastly, a steadily increasing income is a key to financial success. It’s simply too hard to get ahead with a stagnant salary or paycheck. It can be done, but requires serious sacrifice that most people aren’t willing to do.
Instead, you need to work on increasing your income with your career and more importantly, your own business or income stream. Going into business for yourself in some fashion is a common way to get a significant jump in income.
By increasing your income, you increase your investing, your saving, your ability to allocate capital into various assets and areas.
So, what do you think? Where am I off?