Bring up finances and people go motoring down all kinds of directions. Stocks are best! No, real estate is best! Ah, investing in government bonds is really the way to go if you want to make millions.



After a while, it can be easy to wonder not only who is correct, but what you should do with your personal financial situation. Ultimately, the answer is you can make money in nearly every area of finance, but only if you follow some basic rules.

The single most basic rule you must understand has to do with time. No, I am not talking about timing the market. Instead, I am referring to the power of time. Nobody will talk about this on financial shows, but it is a critical concept.

Why is time valuable? Basically, the more of it you have, the better you will do. As time passes, the results you obtain are going to have a bigger cumulative effect. If the trend is positive, the total return on your activities will be huge.

A good example of this is the rule of seven. It works like this. If you get a seven percent annual return, your investment will double in 10 years. This would appear to make no sense, but it does because your gains are being reinvested.

The rule of seven is an abstract guideline, but it shows us a simple example of the power of time. Simply put, the longer you have, the better your ultimate return. So, how do you apply this to your life?

Enough with abstract examples! How about your IRA. Assume you get a 6.9 percent return. Assume you invest for 30 years and put in $2,000 each year. When it is retirement time, you will have over $185,000 in your account.

Now we can see the power of time. Assume we start investing later. All the figures are the same, but we actually put in $4,000 each year. We end up with a total of just under $100,000. Why? Because our gains did not have time to grow as well.

Now, what is the one difference between these scenarios? We invested the same total amount. The only difference was the time over which we did it. The longer time period gave our money time to grow and grow again, known as compounding.

What do these examples tell us? The rule is simple. It is not how much you invest, but how often that is the key. If you put $100 away each month, that is $1,200 a year. When you hit retirement age, that is one nice nest egg.