These 2 Rules Are the Secret to Building Wealth
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All of human strategy can be summarized by the following two rules:
- Minimize downside, then
- Maximize upside
…in that order.
Ignore the first rule and you’re just a gambler who will eventually go bust. Ignore the second rule and you’re condemned to never-ending work with no real gain — a life wasted.
Applied to finance, the rules become even more potent. Ignoring them eventually leads to financial ruin while adhering to them inevitably leads to maximized success.
These two rules are the “secret” source of success for nearly every extremely successful wealth builder in history, from John D. Rockefeller to Nathaniel Rothschild.
Love him or hate him, the legendary Warren Buffett was once asked what the secret to building wealth was. His answer was telling:
Rule No. 1: Never lose money.
Rule No. 2: Don’t forget rule No. 1.
Buffet is right.
Applying the 2 Rules to Your Money
In application, the two rules should live to a dramatically different life than most people live. Let’s look at some examples.
- Minimizing downside means maximizing savings as much as possible. Most don’t — they spend money when they receive it, and it’s definitely not only because of their financial need.
- Minimizing downside means building a strong emergency fund. Most don’t — they use credit cards as their emergency buffer, which is like using gasoline to put out a fire.
- Minimizing downside means not spending money until you can afford it. Otherwise, money needed for other strength building assets is minimized. It’s safer to delay gratification. Most don’t.
- Minimizing downside means minimizing the fees you pay. There are only a handful of investments you should consider – most fall for investment gimmicks and scams.
On the same note, maximizing upside is important — and it’s just as ignored.
- Maximizing upside means setting up an automatic investment plan so you invest more money every month, no matter how small. If you don’t automate wealth building, you’ll build less wealth. Period.
- Maximizing upside means learning how to launch a “side hustle” that will allow you to make a part-time income at almost any point in your life. This gives you more freedom, more money, and an earlier retirement.
- Maximizing upside means finding the most strategic place to live so that every dollar you earn goes further. Most people make the opposite move — they move to expensive places at the worst possible time in their lives.
It’s not enough to follow some of the rules above. You have to mix them together. It’s similar to sports: winning isn’t just about scoring lots of points or minimizing how many points the other team scores. It’s about mixing the two at the same time to achieve a joint goal: victory.
How to Learn More About the 2 Rules
Unfortunately, nearly all financial literature focuses on one of the rules while ignoring the other. There are frugality gurus explaining how to save nickels and there are investment gurus explaining how to take a shot on the next big financial gamble that will make you rich.
Thankfully, the Internet has helped create a new community of publishers and readers who are interested in mixing both defensive and offensive financial approaches to live frugally, invest wisely, and dramatically increase one’s wealth — while minimizing risk as much as possible.
This new approach — mixing defensive personal finance with aggressive wealth building — is the ticket that almost anyone can use toward a wealthy, early retirement.
The ConservativeFinance.org model for success:
- Minimize downside, then
- Maximize upside.
…In that order.
It’s not easy. In fact, the entire point of the strategy is that it requires labor, time, and savvy. But it works.