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There are literally thousands of financial rules and formulas for investors to consider, but only three really matter.
These three rules are applicable regardless of age or income and form the foundation for financial success.
These Three Rules have unequal weight as is evidenced by the depiction above. Rules Two and Three depend upon following Rule One. If you don’t save, nothing else matters.
Spend Less Than You Earn
I have seen many clients over the years try their best to figure out a way to avoid following Rule One, all the while attesting to some perceived “need” to spend money on this or that. We are totally non-judgmental on spending since that is not our domain, but we are very judgmental about savings. We know that everything flows from savings. Nothing has as much impact on your financial future as savings.
Related: Does Your Financial Future Line up With Your Beliefs?
Prioritize Your Wants
Rule Two requires thought about specific outcomes and goals that you want and the trade-offs you are willing to make. This is the spot where many individuals struggle. Eventually, in order to create a workable planning framework, priorities have to be established. Goals have different weights and some things will end up being more important than others.
Unfocus Your Gaze
Rule Three may appear strange at first blush. Investors who focus too intently on the day-to-day details often are tempted to react. Reaction can quickly become overreaction and this can derail even the best financial plan. This rule is about perspective. You get to choose what you ignore. Most of what passes within your field of vision should be ignored in favor of looking beyond the near term.
A good example within nature can be found in the vision of cats. Cats don’t have particularly good up-close vision, but their ability to see movement from far away is extraordinary. We need the same type approach in our financial lives.