The 9-Word Rule

You see the Jones family with a new car, a boat in the yard with a fancy new truck to pull it. They might have the dough to afford this or, just as likely, you might be seeing everything they have parked in the driveway.

Morgan Housel of the investing website, The Motley Fool (fool.com), says real wealth is the things you don’t see because money buys things but wealth buys freedom.

“There are 56,956 personal finance books on Amazon.com,” Housel writes on his Website. “They contain 3 billion words. This seems absurd, because 99 percent of personal finance can be summarized in nine words:

“Work a lot, spend a little, invest the difference.”

Investing for wealth instead of buying cars requires putting your paycheck above your ego. You can’t care what other people think.

Housel advises reading about people who have gone bankrupt. Singer Rhianna had $10 million in the bank in the beginning of 2009 but found herself “effectively bankrupt” at the end of 2009. She blamed her accountant for poor advice and won a lawsuit against him. On the other hand, it is also a cautionary tale for paying attention to your business. The singer lost money on a tour, but she also left the tour to make a movie. In 2009, she bought a $7 million house. Somehow, she did discover before purchase that the house was loaded with mold and rot, and lost $2 million at sale. Today, she is evidently doing things differently since her net worth is now calculated at $43 million.

“You can’t be oblivious to disaster or bad decisions or your financial situation”, says Housel. “Instead be unemotional. Stay calm and be prepared. Do your homework.”

Interestingly, Housel writes that patience and inaction are the best for investing.

Finally, don’t worry if someone gets rich on some scheme, if you stay patient, vigilant and follow the nine-word rule, you should be fine.

A point to remember: According to World Bank economist Branko Milanovic,”The poorest 5% of North Americans are better off than more than two-thirds of the world population. It’s all perspective!