From reading the trials and tribulations in many personal finance stories, it seems to me there are multiple pathways to success or failure. Some plans seem destined for success and other plans seem to have no chance. What differentiates the successful plans from those that don’t succeed?Based on my experience, I believe there are there five simple, universal rules that make the difference between success and failure. These rules are so universal, they can be applied to savings, debt reduction, starting a business, and even sports.
Here are my five Rules of Success:
The Rule of Vision. This is the ability to envision a worthwhile future and set stretching goals toward that future. A good goal should have specific targets and measures. A good goal defines what success will look like quantitatively. Examples of good goals are:
Have a net worth of $800,000 by 35.
Eliminate $27,000 of credit card debt by September, 2008.
If you don’t have a future vision with good goals, stop what you are doing to create them.
The Rule of Skill. This is the ability to effectively use the knowledge that is available. It’s not what you know, it’s how you use what you know. Masters of this rule know how to use compound interest, tax advantaged savings, stocks and bonds, credit cards, and mortgage loans to advance their personal wealth goals. Those who don’t know will essentially advance the wealth of companies that sell these products, at the expense of their own wealth.
If you can’t learn the skill, then hire someone with that skill who can be trusted.
The Rule of Sufficiency. This is the capability of the plan to deliver the result if executed well. If the goal is to save $1MM by 40, having a $10/hour job is not sufficient. Assuming you paid no taxes, it would take 50 years to make $1MM. If you want to pay off $20,000 of debt in 5 years, paying a 2% minimum doesn’t work since it will take 45 years.
If your plan doesn’t have sufficiency, revise the plan so that it does.
The Rule of Sustainability. This is the ability to maintain the plan until your goal is reached. It is important to have balance with other important elements of your life. For example, working 80 hours per week for 10 years may be sufficient, but it is probably not sustainable. Similarly, paying 50% of your income to eliminate debt is not sustainable long term.
If your plan is not sustainable, develop a new plan that is.
The Rule of Will. This is the ability put effort against the work and tasks needed to achieve your goal. Will enables one to do what is necessary even if it is hard. Will is persistence to be successful. For example, will gives one the ability to save or reduce debt by an extra $100/month instead of using the money for a vacation.
If you haven’t yet developed will, divide your goal into smaller segments and develop a track record of success.
Of course, there are no guarantees for success. However, following these rules will significantly increase one’s chances for success.
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1 comment:
Dimes,
Thanks for the comment and question. I’ll try to address your concern. Other readers may also agree the post is lacking in “solutions.” Let me know if I don’t cover your points.
First of all, I purposely didn’t give all the answers in this single post:-) I needed to save content for the future since this blog wouldn’t be sustainable if I provided all the answers at once:-)
Seriously though, the italicized statements are “next steps” and not “solutions.” In my own experience, sometimes the actions being taken cannot or will not solve the issue In these cases, acknowledging that I need to do something different is the first step towards success. Once a person acknowledges that a change in action is needed, one can focus on how to do it – i.e. specific solutions that fit one’s situation.
At the risk of oversimplifying, I’ll create a hypothetical case with your clients. In the example, $250/month is sufficient, but not sustainable (in their opinion). Assuming they agree they need to find a way to pay $250/month (and perhaps, they haven’t agreed), their next step is to explore, “How might they make $250 sustainable?” For their specific situation, there will likely be many options from which they can develop a new plan that is sustainable.
The Rules of Success provide a framework for people to clarify whether they are doing the right things versus just doing things. People will still have to do the work themselves to develop a good plan that solves their specific problem.
Your comment has energized me to create some case studies for future posts that show example possible actions for each rule. (More sustainability for My Wealth Builder:-)
Hope this helps clarify the post. Let me know if I didn’t answer your concerns.
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