In the adult setting knowing and understanding very well the responsible and disciplined use of financial and monetary resources is key for one to have a stress-free and comfortable retirement. For many, the financial responsibility and obligations they have influence decisions they may take and shapes behaviors they may form. It is very important that we understand the bearing of many decisions we may perform now rather than regret them later in life.
By watching Suze Orman’s, a well known financial advisor, wherein she summarizes key aspects of decision making into 5 money lessons, one would be able to make analyze potential financial decisions now rather than regret them later in the future.
In summary, the five law of money are:
- Truth creates money, lies destroy it.
- Look at what you have, not at what you had.
- You have to do what’s right for you before you do what’s right for your money.
- You have to invest in the known, before the unknown.
- Always remember that money has no power of its own.
“Truth creates money, lies destroy it.”
Financially, the gist of this law is that when you can’t afford something outright, you should probably not buy something on debt, unless you could outright pay back the debt in full in due time.
Enabled by the rise of credit cards, many had been victims of acquiring things that are very expensive, beyond their means, and on debt, many of these people, just want to impress people around them, in short, they are lying to themselves, in the effect of this lie, many have been hounded by the easy entry into debt and accrued interest rates they have easily generated through a small lie to themselves.
This money mistake could easily be avoided by buying objects of desire only if they could afford to pay it in full, or promptly in due time if paid in debt.
“Look at what you have, not at what you had.”
Orman reiterates that many people hold on to “old investments” because they have been always looking into their old value rather than its value today. Following her process one should:
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- Write down all investments.
- Iteratively for everything in the list. Ask yourself. Will you buy the same investment today, with the cash you have now?
- If you answered no, you should sell the investment, and if yes, you should keep your investment.
“You have to do what’s right for you before you do what’s right for your money.”
Deciding on investments you may partake in, you should first know if the decision is right for you. Orman said the value you must keep in investment should be determined by how you feel about it. Like in the stock market, you should divest in a business depending on the mood it gives you. To summarize:
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- No fear, you should keep the investment.
- Just fine, sell 25%.
- Not sure, sell 50%.
- losing sleep over it, sell 75%.
- keeps you up at night, sell everything.
As investors, we should be satisfied and happy with our investment decisions, rather than let the investment run our lives.
“You have to invest in the known, before the unknown.”
For a person to have a secured future, they should first invest in the known, which includes housing, cars, funds, and other finances that you know you have to pay off for in the future., only when you are sure that you have enough floating funds to secure for the knowns, should one invest into the unknowns. Like the stock market, where the return for the investment is unknown. An example of this as Orman narrates is that a lot of households in the United States are so overrun with credit card debt that, years on they are still paying off huge sums of interest, for some reaching 18% annually. This should first be settled in full before venturing into other financial ventures.
“Money has no power of its own.”
Orman reiterates that it should be us who decides where to put out money. It is up to us on how to use it wisely to secure financial stability and a secured future.
The five laws of money are very useful to me especially in a time where I am accruing investments that I may deem useful in the future. I may likely follow her words of wisdom for the ideas that she had explained resonates with many financial advisers that I have heard of. She has successfully laid easy to follow rules that anyone could follow to be able to have a sound financial future.