Regardless of how young or old you are, learning the basics of anything is important. People who play golf have most likely taken a golf fessing to learn the basics. I’m sure Michael Phelps took a swimming lesson before he became a world champion swimmer. Unfortunately, most people never learn the basics of investing before investing their hard-earned money. So here are the 6 basic rules to investing:
Know what kind of income you’re investing for Most people think only of making money. They don’t realize that there are different kinds of money to work for. For years, rich dad drilled into me that there are three kinds of income. Ordinary earned income, portfolio income, and passive income. Rich dad said, “If you want to be rich, work for passive income.”
Convert ordinary income into passive income Most people start their life out by making ordinary earned income as an employee. The path to building wealth then starts with understanding the types of income and then converting your earned incomed into other types of income as efficiently as possible.
The investor is the asset or the liability It’s not always the investment that’s risky, but the investor. As I stated earlier, with a lack of financial education, the investor is more likely to make costly mistakes that they might not have made if they were financially literate.
Be prepared Most people try to predict what and when things will happen. A true investor is prepared for anything to happen.
Good deals attract money One of my big concerns as a beginning investor was how I would raise money if I found a good deal. Getting money is the easy part. The hard part was finding the good deal.
Learn to evaluate risk and reward As you become a successful investor, you must learn to evaluate risk and reward. Investing is not the same as gambling. Gambling is blindly handing your money over to someone else to make your investment for you. Good cash flow investments are based on having a financial education.