Some General Principles in Personal Finance
Saving is the main secret behind creating wealth, so earn more and spend less.
“Pay yourself first” means invest some of the money that you earned first before you start spending.
Buy assets [which keep money in your pocket] not liabilities [which take away money from your pocket]. Read “Rich Dad Poor Dad” to understand this better. Borrow from library.
Buy Low, Sell High. Most inexperienced investors do the opposite due to human emotions of Greed and Fear while trying to chase hot stocks.
Do not be afraid of the stock market. People lose in stock market if they buy wrong investments or invest in a wrong way.
Minimize investment costs/ buy funds with low Expense Ratios.
Beware of little expenses. A small hole can sink a ship.
Buy gently used car not brand new. Do not take extended warranty.
Read about Cash flow quadrant.
Learn about Good debt which makes money and Bad debt which takes money from your pocket.
Net Worth goes crazy after 100K. It increases more faster once you have accumulated significant amount.
Develop the mindset: save. plan. invest. hold assets for long duration. Be patient. Enjoy later.
Stay the course, stick to your plan.
Rebalance your portfolio periodically to buy low and sell high and to minimize the risk.
Diversify investments. Your balanced portfolio can have stocks and bonds along with cash. Your age=Percentage of bonds.
The higher your salary, the higher percentage of it should be saved.
Pay credit cards in full each month.
Establish the habit of buying durable things.
Do not time the market and also do not chase hot stocks.
Past performance does not guaranty future rewards.
Extra shifts give more money than any other side-gig.
Front loading may be better than Dollar Cost Averaging.
Buy No load, low cost, tax efficient mutual funds, index funds.
Doing surveys is very inefficient way of spending your valuable time.
Divorce is very costly so plan marriage well in advance-See if prenup is a good option for you.
Invest early and invest often-Time in the market is more important than timing the market.
Learn the power of compound interest.
Avoid Finance advisors unless they are fee only, Make them commit to fiduciary standards. Don’t assume that we get more by paying more to financial advisors.
ROTH IRA is one of the best ways to give money to your heirs.
Which are better? Regular Mutual Funds vs Exchange Traded Funds [ETFs]
Know America’s Biggest finance regrets and aspirations
These days you don’t have to spend any money to gain financial knowledge.
The United States Inflation Rate is projected to trend around 1.90 percent in 2020.
In the long term 15-20 yrs, passive investing with low cost, low turnover, no load [front end sales commission], low expense ratio index funds outperforms majority [even up to 80-90%] of actively managed funds due to low costs, defer capital gains etc.
Know about Taxable and Tax advantaged accounts [Tax deferred and Tax free], Tax efficient and Tax inefficient funds, Investing firms like Fidelity, Vanguard, T. Rowe Price, USAA, Charles Schwab.
VTSAX [Vanguard Total Stock Market Index Fun]=FSKAX [Fidelity Total Stock Market Index Fun]=SWTSX [Schwab Total Stock Market Index Fund]. These are similar funds. Not everything is same about them.
Read about Modern Portfolio theory.
vanguard is owned by investors.
Short term capital gains [gains when funds are sold after holding for less than one year] are taxed at highest marginal income tax rate just like any other ordinary income. Long term capital gains [gains when funds are sold after holding for more than one year] have a maximum tax rate of approximately 15%.
Do not make your current life miserable with the hopes of having good life after retirement. You have to enjoy daily while being frugal and saving as much as possible for future.
Know your risk tolerance. Your risk tolerance should dictate your ratio of stocks to bonds. Bonds are more stable so grow less. Stocks are more volatile but they grow more.
Never trust anyone with your money. Always doubt everyone and their advices. Financial advisors always look to fill their pockets not yours.
