40 Truths about Money
- You control inputs, not outcomes.
- Since outcomes are most affected by inputs, the right inputs usually lead to the right outcomes.
- Money is the effect of your work; it should never be the cause of your work.
- The more you sacrifice for a dollar, the more you respect it.
- How you use money reflects your values and priorities more than anything else.
- Setting specific goals greatly increases your chances of getting what you want.
- Specific goals are quantifiable – they have an amount and a date.
- A goal without a plan is just a wish. Know how you’re going to achieve your goal.
- If you’re not sure how to plan for your goal, get professional help.
- Plan for worst-case scenarios first. Insurance helps here.
- Plan for most-likely scenarios next. Long-term planning is important here.
- Plan for best-case scenarios last. Liquidity and flexibility enable you to seize opportunities.
- Your first priority is to avoid becoming a burden to others.
- Pay yourself
firstsecond, right after God. - You can’t change the past. You can change the future, but only through your actions in the present.
- Your money has the ability to earn far more than you ever can, but only the money you don’t spend.
- Income is what you make; wealth is what you keep.
- Wealth is affected far more by habits than by income.
- Patience and persistence are the most important ingredients to financial independence.
- If you want to be wealthy, financial independence must supersede social status.
- Overcoming inertia is hard because humans have a bias for the status quo.
- Humans fear loss more than we value gain, and you’re no exception.
- Risk and reward move in the same direction. Greater rewards require greater risks.
- Your risk tolerance determines your reward; desired reward doesn’t determine risk tolerance.
- Low risk tolerance is the product of fear, which is often the product of inadequate knowledge.
- Education reduces fear, which raises risk tolerance, which increases rewards.
- Don’t risk a lot to gain a little; don’t spend a lot to reduce risk a little.
- Money isn’t currency; it’s purchasing power. If wages rise 10%, but prices rise 20%, you’re poorer.
- An investment performs work. If it can appreciate without performing work, it’s a speculation.
- Investment success is 10% investment selection, 20% asset allocation, 70% investor behavior.
- Never sink any more into an investment than you can afford to lose forever.
- Diversification reduces risk without reducing rewards.
- When you own bonds, you’re a loaner to an organization.
- When you own stocks, you’re an owner of an organization.
- Dollar-cost averaging is the only proven method to beat the market.
- The asset side of your balance sheet is soft; the liability side is hard.
- Add liabilities (debt) reluctantly and only after careful consideration.
- You’re going to die. Failure to plan for your death will not alter this fact.
- Your death will be hard enough on loved ones. Don’t make it worse by failing to plan.
- You can’t take it with you, so use it wisely here.