Your 25 financial rules for 2011

Go easy on the bling - humility is the best policy. Photo / Bloomberg

Does money slip through your fingers? Are you ruled by it? Do you earn a respectable income, but save nothing? Or is it that you just can't make any money? The difference between successful investors and others is often the 15cm of real estate between said person's ears. They know the rules of spending, saving and investing and leverage them. If that's not you, then it might be time to learn, or at least recap on, some of the most basic money and investing rules for the new year. These are rules that have stood the test of time ...

Personal money rules

1 Every money decision you make has consequences. Be it big or small, your overall financial position is affected by every decision you make. It may be simple such as your attitude to spending small change or using a credit instead of a debit card. Or it may be as large as buying a rental property or a business.

2 Planning is the key to avoiding pitfalls. Understand your financial position and needs.

3 Be really honest with yourself when estimating expenses. Track them to see how accurate your estimates were, then revise.

4 Manage your debt. Consumer debt holds you back financially. Focus on paying this off as soon as possible. Don't fool yourself. If your debt repayments are more than 20 per cent of your after-tax pay you're in trouble.

5 Have regular family financial conferences. The more open you are with everyone in your immediate family about your financial position, the more likely they are to pull their weight in earning money and reducing spending.

6 Pay your bills. There's nothing worse for a small business owner in particular than a customer who doesn't pay bills on time or ever. This is a good karma rule.

7 Consider others' financial positions. Not everyone has the ready cash to pay for things you do. Their children might not be able to go to the movies because mum and dad can't afford it. And your friend might baulk at the price of a costly round in the pub. Don't make life worse for them by being insensitive.

8 Be humble. Bragging or boasting about your wealth, or showing off your fancy clothes, cars and holidays, doesn't make people want to work with you - especially in New Zealand's Tall Poppy society. Being humble about your successes does.

9 Understand the value of your time. The old saying time is money is true - especially if you're self-employed. Not managing your time well can be costly in everything from failing to shop around to being fined for failing to return a library book. It's like being too busy to get a warrant of fitness done on a car and then getting a $200 fine.

10 Don't make excuses. You and only you are responsible for your reality. It's not your husband, wife, mother, father, employer or children's fault. Even mental health issues aren't always an excuse. 11 Give to charity. You can help others and not everyone has the same opportunities in life as you have. If you're of the "it's their own fault" persuasion, support charities that help people start businesses or get an education.

12 Invest in yourself to maximise your talent. But don't just try to increase your technical knowledge. Improving interpersonal and communication skills will pay dividends financially in promotions and wage/salary rises.

13 Concentrate on the 10-20 per cent of your work time that brings in the most of your income. If you're self-employed this is easy. Who are your best clients and do you weight your time towards them? Alternatively, the most important 10 per cent of time may be drumming up new business. For employed people it could be finishing projects, networking, job hunting, or studying to improve your skills. Do what pays the best long term.

14 Prioritise your financial life. If you spend an hour shopping to save $10 and don't ever review your finances, you'll struggle to get ahead. Consider the activities that will bring you in the best return (money or happiness) and prioritise those. Part of the matrix is also weighing short- and long-term returns against each other.

15 Spend like it's yesterday. Watch how older people spend and take a leaf out of their books. It will help give you the resilience to survive the next big recession, which will come eventually. Understand the difference between needs and wants. This is one that people are losing sight of in the 21st century. Investment rules16 Commit a percentage of your earnings to savings.. Don't deviate. Put the savings away first.

17 Take calculated risks. It's important to understand risk and differentiate between volatility. Volatility is the fluctuation of a market price. Risk is the chance of losing money. Risk is the bad one. But it can't be avoided completely and nor should it be. Too many investors think "low risk good, high risk bad", whereas calculated risks result in better returns enabling investments to keep pace with or grow ahead of inflation.

18 Don't time the market. You're not going to beat the experts, who can't always do it anyway. Beginner's luck often leads new investors to make foolish mistakes.

19 Only invest what you can afford to lose. This is particularly the case with risky investments such as off-the-plan property. Make sure you understand exactly how much you stand to lose in a worst-case scenario. It can happen.

20 Ditch the duds. Don't throw your good money after bad. Poorly performing investments should be sold if they're unlikely to show an improvement in a reasonable time frame, or if the money would be best invested chasing better opportunities.

21 Get up close and personal with compounding. It's easy to think that a few hundred dollars here or there won't add up to much long term - especially if you watched your investments in free-fall in 2007/8. Compounding of returns really does work magic over time - as some KiwiSavers are starting to see.

22 If it sounds too good to be true, it probably is. It may sound like a scratched record. But virtually everyone who invests in a too good to be true scheme comes a cropper eventually. Just look at the elderly people who thought they'd get a staggering return from their Blue Chip "joint venture" investments and didn't realise they'd signed to buy property.

23 Always look at how much the other guy is making when he tries to sell you something. This is a classic Warren Buffett-ism. The harder someone is trying to sell you something, the more likely there's a big profit in it. A few years back home phones ran hot with get-rich-quick property schemes, often dressed up as tax-saving opportunities. Now it's heat pumps and home insulation, with some installers getting fat on the government subsidies. Next year it will be something different.

24 Get help if you're suffering financial stress. It's nothing to be ashamed of. The Mental Health Foundation guide Coping with Financial Stress can be downloaded online from mentalhealth.org.nz/file/downloads/pdf/file - 255.pdf and offers practical solutions and information about organisations that can help.

25 Reset, repair, recover. If you're still suffering a hangover from the credit crunch, put a plan in place to move forward. Plenty of losers from the 1987 crash such as property investor Ollie Newland picked up the pieces and became wealthy a second time over.