Morgan Housel said that.
He is a partner at The Collaborative Fund, an expert on behavioral finance and history and former finance columnist at The Motley Fool and The Wall Street Journal.
He argues that, to master personal finance, remember to apply this simple personal finance rule that is captured in almost every personal finance book:
Work a lot, spend a little, invest the difference.
Here is the complete quote on The Motley Fool:
There are 56,956 personal finance books on Amazon.com. In aggregate, they contain more than 3 billion words. This seems absurd because 99% of personal finance can be summarized in nine words: Work a lot, spend a little, invest the difference. Master that, and the other 2.999 billion words are filler.
In his recent book, The Psychology of Money: Timeless Lessons on Wealth, Greed, And Happiness, Morgan explains the strange ways people think about money and how to make better sense of one of life’s most important topic.
Money matters can become more complex as you age — you have more responsibilities, needs, wants and a lot of things to take care of. But once you master this simple personal rule, you can have complete control over your money.
Here’s a breakdown of Morgans quote, and what it can mean for your personal finance.
Work a lot
Nobody is great without work. Hard work is always the baseline of great achievements. Nothing spectacular comes without it.
Being productive is hard work. Setting goals, making plans to achieve them, and staying on track is hard work.
There’s no evidence of high-level performance without experience or practice. The most accomplished people needed years of hard work and smart choices before becoming world-class.
Warren Buffet is one of the most successful investors of the 20th century. He started his business career extremely early and had
Buffet found his passion early on and threw his complete self into it! He has been working hard and smart since his first small business by the age of 13.
With a net-worth north of 82.3 billion USD (2020), Buffett is still working, lives modestly and is one of the world’s most generous philanthropists.
He once said: “You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
To improve your finances, find ways to increase your income and work hard it to earn more over time. Don’t wait for opportunities, create them. When you learn to embrace hard work instead of running from it, you gain the ability to execute on your big goals, no matter what it takes to achieve them.
Spend a little
Spending less than we earn is one of the most fundamental principles of all personal finances, and yet so many of us have such a hard time doing it!
Basically, improving your personal finance comes down to finding ways to increase your income and decrease your expenses.
“Most people’s biggest expense is interest, which comes from living beyond your means, and buying things they think will impress others, which comes from insecurity. Avoid these two and you’ll grow richer than most of your peers says Morgan Housel.
The Japanese believe that tidiness in your finances is as important as tidiness in your home. “Most children in Japan get their first training in personal finance at a young age from their parents. They are taught that the more money they save, the higher the quality of personal items they can buy in the future,” writes Melo at Moni Ninja.
If you’ve never tracked your expenses, begin to do that starting today. Then evaluate how you’re spending your money, and see what you can cut out or reduce. Decide if each expense is absolutely necessary, then eliminate the unnecessary.
Invest the difference
“Invest in as much of yourself as you can, you are your own biggest asset by far.” — Warren Buffet
You are your biggest investment. To get better at improving your finances, improve your perception of money and investment. The more you educate yourself, the better your finances will be.
Paul Tudor Jones, self-made billionaire entrepreneur, investor, and philanthropist agrees. He once said, “Intellectual capital will always trump financial capital.”
Warren Buffett spends five to six hours per day reading five newspapers and 500 pages of corporate reports. Buffett has invested 80% of his time in reading and thinking throughout his career.
You can invest in yourself by learning how to build something of value to a lot of people, learning a skill that makes you indispensable in the future, or by reading selected books on specific topics you care about.
Once you build a better investment perception, you can start investing in the right financial products.
You can invest the difference by setting up an investment account that makes it easy to put invest a percentage of your income every month.
To build long-term wealth, invest just a small percentage of your income into a broad-based fund every month. Once a month, I buy more shares of selected Vanguard Index Funds. The cost is low, and the risk is also relatively low.
With a long enough time and a sufficiently high-interest rate, the growth is always impressive. Morgan says, “Two things you can do to make yourself a better investor increase the amount of time you’re investing for and the humility you put into your ideas.”
Here’s one of the most widely quoted pearls of wisdom of Warren Buffett you should remember when you start investing: “Rule №1: Never lose money. Rule №2: Never forget rule №1.” And finally, “learn more from your bad investments than your good ones,” says Morgan.
This post was previously published on Kaizen Habits.
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