The 7 PRINCIPLES of Financial SUCCESS

No one sets out to fail with finances or be mediocre with money. We want to be successful with our salary, capable with our capital, adroit with our assets, and wise with our wealth. We seek success.

Most media shrieks at us about how to be successful with our money. Hot stock tips, complex investment strategies, and gregarious gurus promise riches. But do they pan out?

I contend that financial success is built on timeless principles, not recent products. The foundation for success is accepting and following the principles of success. Build your financial prosperity on the Seven Pillars of Success.

Principles are timeless. They don’t change with the culture, the weather, or the global economy. They are the rock that you can cling to when the going gets tough and the fuel to boost your success when all is going well.

We should all abide by seven principles to increase our financial success. You may find a bit of success without some of them, but it is impossible to be successful while ignoring all of them. Let’s look at each of them and why they are so important.

Pillar I – Planning

We established that our portfolio of equities is to fund a plan. A portfolio is not a plan; it funds the plan. Planning is the critical step, the keystone to our success.

No one plans to fail. But we do fail to plan, and the result is the same. You need to plan if you want to be successful with finances. Not just a plan. You need to plan. Present progressive. An ongoing process.

No one ever wandered into financial success, but you can wander into financial ruin. You can’t accidentally acquire assets, don’t find funds by a fluke, can’t increase cash by coincidence. You can’t invest involuntarily.

All the practical steps of financial success (investing, reducing debt, avoiding taxes, etc.) come after a plan. You plan to make Roth IRA contributions, and then you do it. Next, you plan to save taxes. Then, you plan to have the right insurance.

You can wander through your financial life, hoping things will accidentally work out. (They won’t.) Or you can plan your financial life and massively improve your chances of success.

I suppose there is a third option. You can be sold. You can wander until someone gets ahold of you and sells you an insurance policy, an investment product, or a debt leveraging strategy. Either you let life happen to you, or you can plan the life you want.

There are six domains of financial planning:

1. Cashflow and Net Worth
2. Investment Planning
3. Insurance Planning
4. Retirement Planning
5. Tax Planning
6. Estate Planning

All the domains work together, and you cannot plan for them a la carte. There is enough distinction to put them in categories, but strategies will generally span two or more. 3D Retirement Income, for example, spans Investment and Retirement Planning. Let’s look briefly at each domain of Financial Planning.

Cash Flow and Net Worth

Cash flow is the life breath of a financial plan: cash comes in, cash goes out, every month for your entire life. If you’re not yet retired, you need a cash flow plan that supports your lifestyle and allows you to save enough for retirement to continue to support that lifestyle. Knowing what you need on a monthly basis is key to retirement planning.

Your net worth is the sum of everything you own minus everything you owe. Never conflate net worth with human worth; the two are unrelated. But you must know everything you own and what it’s worth, as well as have a plan to pay for everything you owe. You do not need to be debt-free to retire but having little to no debt gives you lots of flexibility. Consolidating accounts and using software to track your assets are good places to start.

Cash flow and net worth planning are not complicated, but they set the foundation for the more complex aspects of planning.

Investment Planning

Everyone has a portfolio, but few people have a plan. 3D Retirement Income provides a plan for your investments. It gives purpose to your portfolio. You now have a framework for your asset allocation, principles around diversification, and strategies for rebalancing and distributions. But you still need to plan the precise funds you need and the styles you will use. I cannot recommend anything in a book, but a fee-only fiduciary financial advisor can help you with the details.

Insurance Planning

Building a financial plan means you want to protect it. Life doesn’t always go the way we want it to. One of the ways that we protect our finances is with insurance. We pay a small premium to place the risk of things going wrong with an insurance company to avoid that risk. Some insurances are necessary, and some are absolutely unnecessary. Insurance planning seeks to get us the right coverage and the best possible price.

Tax Planning

Taxes are the most significant expense any of us will pay. People often believe their home is their largest expense. But only the mortgage interest we pay on a home is an expense, and the mortgage can be paid off. The home is an asset. Most of us will not be able to “pay off” our taxes and cease to owe them anymore. We will pay taxes for the rest of our lives.

Tax Planning attempts to pay the least tax over one’s lifetime. There is a big difference between tax planning and tax preparation.

Tax Preparation is looking backward to reduce the tax paid last year. It gathers tax forms, the historical record of income earned and expenses paid, and compiles it to ensure that the correct taxes were paid.

Tax preparation is often focused on reducing the taxes paid in one year. Preparers that only focus on one year (whether DIYers or paid preparers) typically will make moves to reduce taxes in the year they are filing, even if it means paying more taxes over a lifetime. For example, a preparer may recommend contributing to a Traditional IRA to lower gross income for the year when the client should contribute to a Roth IRA instead. Accurate tax preparation is critical. But it does not go far enough.

Tax Planning is looking forward to reduce the total tax paid over a lifetime. It uses current tax law and educated guesses to estimate future tax rates. It incorporates the other parts of your financial plan to determine how to have the best chance of paying the least amount of taxes in total, not just this year.

If taxes are your largest expense and can be reduced, you must plan to do so. If you can’t plan it effectively yourself, you must hire someone to do it for you.

Retirement Planning

Retirement Planning has two major components:

Pre-Retirement Planning is planning when you can retire. It determines how much capital you need and how it should be structured to avoid returning to work.

In-Retirement Planning is planning how to be retired. It looks at how to distribute your capital when you’ve retired and align it with Social Security, Medicare, and other retirement strategies.

We spend decades working. It is critical that we invest time and effort into planning when and how we are going to be retired.

Estate Planning

Estate Planning is not just for the wealthy. It’s for anyone who wants to control what happens to their dependents and assets when they pass. There are five problems we are trying to avoid with Estate Planning.

Family Fights

If you don’t decide exactly what you want to happen to your assets and possessions, you leave your family to fight over them. Many people claim that their family gets along and won’t have any problems distributing the assets. But money does weird things to people, and it is much better for you to decide and make that decision legally binding than for you to leave it to them.

Estate planning isn’t only for seniors. It is also critical that any dependents are cared for according to their parents’ wishes. Your children need estate planning if they have children. Generally, family members will be willing to help, but there can often be fights over who takes the children. Encourage your children to complete their estate plans if you want to ensure your grandchildren will be taken care of.

Family Burden

Your family is left trying to pick up the pieces without an estate plan. Make it easy on your family by legally appointing an executor and financial and health powers of attorney. An estate plan for those with dependent children will also include life insurance. Your children should not foist their children on someone else without taking care of the financial aspects with sufficient term life insurance.

Government Deciding

If you don’t decide what happens to your assets, possessions, and dependents, the government will. Do you want them interfering with everything you have built? I didn’t think so. Decide for yourself and make it legal through the appropriate documents.

Long Delays

When you die, your estate (everything you own) goes through a process called “probate.” The process takes at least 90 days and can often take a year or more, especially when there is no estate plan. We can shorten the probate process and have most of your assets avoid probate altogether. You need a good estate plan to ensure that your money goes directly to your children and grandchildren, churches, and charities without delay. A will does not avoid probate. You need more than a will to skip delays.

Excessive Fees

Dying isn’t free, but you can reduce the cost. A prominent estate planning attorney told me that many attorneys will only recommend a will. They may suggest that a simple will should suffice because your situation isn’t complex enough to warrant a complete plan. Plus, they only charge $1,000 for a will, and a complete estate plan with a trust will cost $5,000 to $10,000. They are “saving you money.” But the real money for attorneys is managing the probate process.

Pillar II – Discipline

Some things in personal finance only need to be done once or rarely need redoing, such as creating an estate plan. Get it done. After it is done, you only need to revisit it after one of the five Ds: Death, Divorce, Diagnosis, Decision, Decade. In other words, once it’s done, you won’t have to think about it for a while.

But many of the other aspects of financial planning require discipline: applying the same action repeatedly over days, weeks, months, and years. Discipline is powerful and inhuman. It does not come naturally to any of us. We need to learn it, practice it, and keep it. It will slip away faster than it is gained.

You will need the disciplines of paying yourself first, budgeting, paying down debt, saving into retirement accounts, living on less than you make, and many others. 

Probably the most challenging part of financial discipline is the length of time you will need to maintain it: forever. It is not a forty-day Lent or a two-year weight loss journey. You need to build your disciplines and maintain them for decades, not days. Anyone can save into a retirement account for a few months or even a few years. Can you do enough of it every year for decades? 

The overwhelmingly good news about discipline is that it is achievable for everyone! It doesn’t require luck, insider information, the right stock tip, a wealthy family, or anything else. Anyone can build and maintain discipline. The disciplined budgeters and spenders avoid debt and living paycheck to paycheck. The disciplined savers and investors build wealth. When combined with planning and the rest of the Pillars, discipline will take you to where you want to go, one step at a time. 

Pillar III – Patience 

Patience is waiting in expectation of something greater. Discipline may be described as faithfully contributing each month to your Roth IRA. Patience may be described as letting your Roth IRA grow, understanding that it will not happen overnight. 

So many aspects of finance require patience, but none more than investing. Investing (as opposed to speculation or trading) requires patience. It takes decades to prove successful. If you apply disciple and patience to investing, success is inevitable.

It also requires patience to adopt your true time horizon. Many people, even professionals, see the retirement date as the goal of investing. We are investing for retirement. Retirement is five years away. Therefore, our time horizon is five years.

But unless you are planning to spend 100% of your money in the first year of retirement, that is not your time horizon. You will need money 10, 20, and 30 years later. Your time horizon is the day you die if you are trying to die with nothing and longer if you are trying to leave a financial legacy. Adopting a multi-generational time horizon takes patience, and it helps you be patient. 

All good come things to those who wait, and only to those who wait come good things. 

One caveat. Patience is different from procrastination. “Patiently” waiting for the right time to save for the future is not patience. It’s procrastination. “Patiently” waiting to complete your estate plan until all the children you want are born is not patience. It’s foolishness. 

Pillar IV – Knowledge

You cannot do anything intelligent with money until you know what to do and how to do it.It’s not possible. You need knowledge. 

Personal Finance is not a required class in most middle schools, high schools, or universities. Financial illiteracy is a huge problem in the United States. We’ve learned most of what we know about finances from the marketing departments of banks, credit card companies, and insurance companies. Some of us have learned from a finance guru, whose broad rules of thumb we find hard to apply to our circumstances. Or maybe we’ve learned from a financial services representative, who said he was a “Financial Advisor” and gave us some “advice.” But it turns out he learned everything he knows from the internal wholesalers at the insurance company that employs him. 

You must be educated on the financial topic relevant to you. Only then can you do it. There are three ways to learn.

Self-Directed Education 

This is probably the worst way to educate yourself. 

By “self-directed,” I mean “learning by Googling.” You hear about a financial topic or strategy, and you want to know a bit more about it and Google it. You click on a few of the top links and maybe browse an article a bit. Perhaps you get distracted by the banner ads and scroll-with-you ads. Or there are so many ads that you get mad and exit the site. You scratch the itch you had about the topic and move on. 

But you don’t truly understand it. Moreover, you haven’t connected it to the other dots in your financial life. You have a skin-deep level of knowledge that is almost useless unless pursued further. You don’t have an education; you have a collection of facts. 

Sporadic Googling and research will never get you the knowledge you need.

Guided Education

Rather than randomly researching, you can take a guided approach to your education. Let someone who understands the bigger picture and the complexities lay it out in a way that makes sense.

The easiest and cheapest way to do this is to read or listen to books. Many brilliant authors have written brilliant books about finance that are easy to understand and apply. Reading books is exponentially superior to reading articles. And it doesn’t take any longer!

The most common excuse I hear for why people don’t read books is time. “I’d love to read more; I just don’t have the time.” 

But it doesn’t have to be regular reading. You can listen. Audiobooks are everywhere, and you can listen while doing other things. It might take a bit to get used to listening, just like it takes a bit to start reading again if you haven’t in a long time. But it is much easier and more convenient to listen to books than to read them. 

And it’s cheap, or even free, to read and listen. There are physical and digital libraries. You can borrow an audiobook like you do a physical book, right to your phone—for free. If you want an excellent place to start, you can view my recommended reading list at RetireMentorship.com/books.

Read or listen to books. It will grow your knowledge and change your life. 

Advice & Education

Education and advice specific to your situation is the deepest level. If you are working through some mental hurdles, you can read some books or take some classes on Cognitive Behavioral Therapy. Or you can see a Cognitive Behavioral Therapist. The latter is likely more effective, as they can help you get to the root of your specific issue. 

Similarly, a fiduciary advisor or planner who has the heart of a teacher will educate you on what and why you should do specific strategies and actions in your finances. 

You can, and should, use both guided education and advice. Get the basics through books and classes. Get the specifics through advice. 

You must know to act. No one can make you know. You must want to. You need the Pillar of Knowledge if you want a solid financial future. 

I had a new client once who was very excited about finances. He said to me with gusto, “Teach me everything you know about money!”

To which my reaction was, “No.”

If I taught you everything I know about money, you would know a lot of useless information. You’d have a wealth of conflicting strategies and know more about elements that don’t involve your situation than about elements that do. Knowing everything is a lot of work and mostly useless. Knowing everything is helpful for those who play Jeopardy and no one else.

Instead, I’ll teach you what you need to know. I’ll filter out all the false, misleading, and useless information so that you can focus on what is essential. From there, we can formulate a plan and act on that plan. First, though, you need to know. Knowing is essential.

It is also insufficient 

The famous “but” is the most obvious proof that knowledge is not enough.

“I know, but…” 

“I know I should save for retirement. But I want the new Ford F150.”

“I know I need to go to the gym. But I was up late last night and slept in instead.”

“I know I shouldn’t carry a balance on my credit card. But I get so many points!”

“I know, but…”

We know, but we don’t do. Knowledge is insufficient.

We have thousands of self-help and improvement books available to us. We consume them and love them. If there is all this “life-changing,” “optimizing,” “reach your potential” knowledge out there available at only $15-$25 and six hours of reading, why aren’t we all there? Why isn’t everyone self-actualized and living their best life? 

If knowing were enough, we’d all be billionaires with six-pack abs. Knowing is essential and insufficient. So what is missing? We’ll cover that in the next video. Make sure you subscribe to the channel to ensure you get that video when it drops. If you want guided education on retirement income, you can get my book 3D Retirement Income on Amazon or for free at https://RetireMentorship.com. Links are in the description. Otherwise, we’ll see you on the other side. Cheers.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.