Monday, April 5, 2010

Best Financial Advice Ever

We all have had friends or family give us some personal finance or investment advice.

While mulling over it yesterday, I was wondering which was the best financial advice I ever received in my life. I realised that the few important or best advice that I got were either from books, family, friends or even people who posted in forums.

Today, I will share with you TWO of the BEST financial advice I ever got.

#1 - Pay Yourself First

I can't really remember where I got this advice from. I believe it is from some book or maybe some forum. It took me quite a while to understand this golden piece of advice and I have been practicing this ever since I finally understood what it means.

To pay yourself first means to take your paycheck and then literally PAY YOURSELF FIRST.

You take out a portion of your income and save it or invest it first. Different people implement this differently so you might like to find out the ways you can go about doing it.

The idea is actually really simple and basically creates the discipline to SAVE FIRST before you even spend a single cent on food or clothing or anything else.

To date, this is the best financial advice I received because I used to pay myself LAST. That means that I basically saved or invested whatever money was leftover for that month. This resulted in months where I had little or no savings at all.

#2 - Don't Contra

This was advice given to me by many people which I failed to heed. To contra stocks means to buy and sell stocks without having to put up any money.

The lure of being able to buy stocks when they are low and selling them when they are high within 3 trading days seems so attractive. Afterall, you don't even have to use any real cash and it seems like one is able to make money without the need to even put up any money.

The problem with Contra is that time is against you. One only has 3 trading days to hope that the price of the stock will go up. If it goes down, you are forced to sell the stock for a lower price and thus incur a loss.

My view nowadays is that one should not contra at all, even if he or she has the money to buy the stock. It does not make logical sense to hold a stock just for 3 days to sell it off later.

Conclusion

Pay yourself first and don't contra. This are two of the best advice I have ever received. I have received many other sorts of advice but these two will always stay with me.

What is the best financial advice you have ever received?

8 comments:

  1. "Pay yourself first". First came across this in "Rich Dad Poor Dad" (RDPD). It is mentioned in some other books but not as much as RDPD.

    It is easy say than done. It is a struggle for me and it took me at least 6 months to drill into this habit.

    The other best financial advice I would recommend is "Power of Compound" be it interests or debts. It is a double edged sword.

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  2. I love Magic Of Compounding

    http://createwealth8888.blogspot.com/2009/10/magic-of-compounding-cowsense.html

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  3. Hi axt and CW8888,

    Yep. I think pay yourself first is a popular concept that perhaps Robert K expounded quite a bit on in his RDPD book.

    Power of compounding is indeed one good financial advice that I have learnt too!

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  4. "Pay Yourself First"

    Read the Richest Man In Babylon. It is expounded in there as well. :)


    From Algamish in the book:
    "I found the road to wealth when I decided that a part of all I earned was mine to keep. And so will you."

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  5. To add to the list:

    Keep your emotion in control

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  6. Hi FF,

    Warren Buffett also has two good financial advice, they are:

    1. Never lose money.
    2. Never forget Rule 1

    :) But yours are things people should follow easily than Warren Buffett.
    Lemizeraq

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  7. Hi guys,

    All these are wonderful inputs really!

    I have heard so many of these tips but sometimes just forget abstract them until I make some silly mistake down the road.

    Keep the comments flowing..

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  8. Thanks for such a great conversation, keep it up guys!

    Finance Info

    ReplyDelete

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