Simple Rules for Personal Financial Success

Engaging an activity without an understanding of the associative principles and rules is generally a consequential endeavor. This winter alone a good number of outdoor enthusiasts ventured into the White Mountains of New Hampshire absent both knowledge and attire, and quickly met their Maker. Ed Viesturs, the greatest mountaineer America ever produced, never put his crampons on before reading, “Freedom of the Hills”, a 575 page manual on the sport, also known as “The Bible of Mountaineering”, two times word for word! His success is not a mystery, but the result of his commitment to education. Finance needlessly claims far more financial lives than all the mountains on earth. Burn the following rules into your thinking, allow them to incinerate your financial fallacies, practice them devotedly, and enjoy the blessings they will bring.

Establish a net positive cash flow (‘NPCF’: net income exceeds gross expenses) with hard work, career specialization, and strict budgeting.

• Most consumers make excuses for their overspending, but this rule requires unfunded, voluntary expenses to be eradicated, including, but not limited to pets, cell phones, cable TV, eating out, needless driving, vacationing, hobbying, and even excess giving.
• Most Americans accumulate debt faster than equity for failing to obey this simple rule. Don’t be one of them! Do no further financial planning until accomplishing a ‘NPCF’ in your household, which would equate to fertilizing a grub-infested lawn.

Appropriate your monthly excess (NPCF) productively.

• Establish an ample emergency fund equal to at least six months household expenses, accelerate debt repayment dutifully, and buy enough term life insurance to protect your loved-ones.
• Understand real wealth building requires investment returns equal to, or greater than inflation, which necessitates the ownership of great businesses. Diversify holdings, dollar cost average your purchases, own index funds, minimize expenses, and avoid taxes.

Become a judicious risk assessor of your investment portfolio.

• A 1,500 lb. brown bear won’t engage a 45 lb. wolverine because it understands injury results in death. Most great investors insist the avoidance of catastrophic loss is the single most important aspect of investing. Embrace this truth.
• Keep individual positions to 5% or less of the whole. Establish stop-loss orders on all non-forever stock holdings at the time of purchase, and follow them militantly. Buy primarily boring businesses which earn consistent profits and pay dividends. Follow purchase parameters to avoid overpayment.¹

These rules are few and simple, but sufficiently powerful to transform wealth consumers into methodical wealth producers. Think about it, Shaun.

“Rule number one is never lose money. Rule number two is never forget rule number one.” ~Warren Buffet

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.” ~Proverbs 13:11

1 Stansberry Research, “The Stansberry Digest”, April 10, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.