Universal Rules - Wealth

A universal rule is a behavioral or social guideline, based on probability, that is universally applicable. We are all bound to universal rules in this life, whether we agree with them or not. This is why universal rules must take precedence over personal preferences. Those who break these universal rules, at some point, end up paying the piper. Consider the following universal rules when making financial decisions.

The Rule of Income

Never take income from an account that has experienced significant losses. Markets can crash. People can lose their job. Difficult times are a part of life. Make sure that you always have a reservoir of funds that are in investments or products that can't lose money. That way, when difficulty strikes, you can keep your income coming in without potentially accentuating losses.

The Rule of Debt

Debt is a tool to be used for investment purposes, not lifestyle enhancements. When you take on debt, you take on risk. The purpose of an investment is to make a calculated decision that can help you build your wealth. Debt for your education, for your home, and so on may be appropriate. Taking on debt for vacations, extra clothes, and other "wants" breaks this universal rule.

The Rule of Diversification

Diversify your assets by objectives instead of lumping everything together with investment ambiguity. There's no such thing as a perfect investment, product, or strategy. As the responsibility of your assets grows, so should the diversification of your investments and products. Wide diversification for the sake of being diversified qualifies as investment ambiguity and may lead to inefficiencies that could get in the way of your lifestyle and legacy goals.

The Rule of Cash Flow

Keep your cash flow free and you will be free. Cash flow is the movement of money within your personal control. There are three potential masters of your cash flow. You, your future self, and your creditors. Your future self requires at least 10% of your net cash flow. Your creditors take up as much cash flow as you will allow them to take. You get what is left over. Never allow your creditors (max 40%) and your future self (minimum 10%) make up more than 50% of your net cash flow.

The Rule of Planning

Predetermined guidelines can help increase your probability of future success. No one knows the future. Being able to plan for multiple situations can give you a significant advantage over going all in one one strategy and potential outcome. Your plan should support your lifestyle and legacy goals.

This content on this website is provided for informational purposes only and is not intended to serve as the basis for financial decisions. It should not be construed as investment advice or a recommendation.

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