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18 Rules for Becoming a Financial Badass

  1. Don’t speculate. Invest.
  2. DON’T borrow to buy liabilities. DO borrow to invest intelligently in assets (i.e., maintain investment debt to accelerate wealth creation). Healthy leverage is key.
  3. When deciding whether to invest or pay down debt, compare your interest rate on your debt to the gains you’re likely to make on your investments. Choose the one that results in the most money in the end.
  4. Automate your regular bill payments.
  5. Automate your investing.
  6. Always pay off your credit card balance in full every month.
  7. Get your credit score at least annually and review it closely.
  8. Live well within your means.
  9. When your credit card company wants to increase your credit limit, let them! Then don’t spend any more than you need to. The idea is to keep your credit usage ratio as low as possible.
  10. Never save your credit card information on a website. Use a good password management app instead (For instance, I use 1Password).
  11. Take control of your own financial health. Nobody else cares about your financial success as much as you.
  12. All investing involves some degree of risk. However, the risk-return direct correlation doesn’t apply equally to all investment types (e.g., stocks, bonds, mutual funds, etc. do follow this rule but real estate investing does not). Your goal should be to invest in assets that maximize returns but allow you to mitigate the risks through strategic choices and diversification.
  13. Use fee-only financial advisors.
  14. Make your registered accounts self-directed.
  15. Have a will and keep it updated.
  16. Timing is important. But it’s not timing the market that leads to success, it’s time in the market that matters.
  17. Understand the time value of money. Compounding is key to exponential growth of wealth.
  18. Paying off your mortgage completely may be the single biggest financial mistake you can make. Instead, consider getting a re-advanceable HELOC (Home Equity Line of Credit, a.k.a., a collateral charge mortgage) and use the equity you’ve built up in your home (through mortgage pay down and appreciation) to invest.  This way you can earn a return (that is likely much better than the historically low interest rate you’re paying on your mortgage) AND make your mortgage tax deductible (because you’re borrowing against it to invest).  This is known as The Smith Maneuver.

I’ll come back to better explain each of these in future posts.

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