Follow a List of “Money Rules” Before You Purchase

Wealth Tactic 14

by Ed Barriskill (Co-Founder, 37th Parallel Properties)

What are Money Rules? Money Rules are the specific and personal rules you create and then follow when you are contemplating getting involved in an investment. These rules will guide you in making good financial decisions.

I learned about the concept of Money Rules from Loral Langemeier (owner of Loral’s Big Table) and it is a “gold nugget” to follow. Money Rules are important to have and to follow when you are making any personal and financial decisions. When you have established your own set of Money Rules you make an agreement with yourself that those rules will be absolutely non-negotiable.  There will be times when you will want to deviate from your Money Rules, but there must to be a very good reason to do so.

When you follow your Money Rules you will have set in motion a process that will help you make good decisions when investing in any business or real estate opportunity. Your Money Rules will set a foundation for determining if you should invest in a particular project or not.  You must be emotionless when you use your Money Rules, so if you decide to walk away from a deal that looks profitable, you can trust you made the best decision.

As an example, Chad Doty (my partner) and I just turned down a 40 unit multi-family Apartment building in Northern Kentucky because it didn’t fit our Rules. We both knew we could have made a lot of money on this project but after looking at our Rules we agreed that purchasing this project would take us away from our main focus and objective at 37th Parallel Properties.

Do you have a set of “Money Rules”? Like many new concepts, it might be difficult to get started or be sure you are on the right track. If you have no Money Rules, or you aren’t sure if your Money Rules are good ones, please take some time to actually write them down and share them with your trusted advisors. This is where a solid network can come in handy once more. There is no crime is “borrowing” some Money Rules from others that have had successes and tribulations in the investing world.

Here are some example Money Rules:

1. I will pay off my credit cards every month
2. I will put money in my wealth account every month
3. I will only purchase “C+ to B” category properties
4. I will consult my team of experts before I purchase a particular property
5. I will not purchase items unless I can pay cash for them

I would categorize Money Rules as being part of your due diligence process. Smart, successful investors have strict Money Rules that guide them in making good decisions. On the reverse side, I hear many people state that they are not receiving the returns that they were told they were going to receive or they have lost their money in a particular investment. Not all the time (depending on the economy) but many times an investor can escape these downfalls by following their Money Rules.

Allow me to share an unfortunate situation with you so you can learn from it, and not make the same mistake I did (and I have to take full responsibility for this blunder because my wife didn’t want us to invest in this project!) Many years ago we entered into an investment which I had no expertise in, but the numbers looked very good. Please note that I was not an expert in this particular business myself, so it was difficult for me to do the necessary due diligence to verify the numbers and I had to take them at face value. Long story short, the ROI numbers that were given to Kathy and I were not accurate (60% off the Pro Forma) and after two years of working hard trying to make the business profitable, we lost a sizable amount of money.

If I had made a money rule that I’d only invest in projects (real estate asset classes) that I was an expert in or my team was very knowledgeable in, I would had not had made that mistake and been miles ahead financially. Through this experience I have become a better business person and investor, but what a price to pay for the education!  Believe me, investing in only those asset classes that I am an expert in is one of my Money Rules now, plus I learned (the hard way) to listen to my wife’s gut level feeling of what not to invest in.

It is also wise to review your money rules once or twice a year, particularly around the time you are performing an investment transaction. Review each rule and see if it needs to be modified or discarded, or if new rules need to be added. This exercise will also serve the purpose of keeping these rules fresh in your mind as you set off on your next investment adventure!

By creating a specific list of Money Rules that you will commit to and follow to the letter, I promise you will reduce your risk tremendously when you are contemplating an investment. Why not mimic what other successful investors do to build wealth, and create a list of non-negotiable Money Rules to use as your own personal guideline. Building wealth is about adopting winning strategies that successful investors use themselves.