In finance, as in life, there are opinions, and there are facts.
Opinions are everywhere. You hear them at dinner parties, read them in the news reports, and see them shouted on cable news. “Buy gold,” “Sell tech,” “Property is dead,” “Crypto is the future.” These opinions change with the wind.
But beneath the noise, there are certain principles that remain true regardless of who is President, what inflation is doing, or which stock is trending. Think of these not as rules, but as the “laws of physics” for your wealth.
They are unchangeable.
If you want to build a financial house that can withstand any storm, you cannot negotiate with these laws. You have to build in alignment with them.
Here are the first three universal truths that belong in every financial plan.
- The gap is the wealth
We often obsess over income. We admire the high earners and assume they are the wealthy ones. But income is not wealth. Income is just a river flowing through your life; wealth is the reservoir you build from it.
The only variable that truly matters is the “gap”—the difference between what you earn and what you spend.
If you spend more than you earn, you are, technically speaking, broke. You are running on a treadmill that is moving faster than you are. Conversely, if you spend less than you earn, you will be able to build freedom.
This is the unglamorous truth: you cannot out-earn a bad spending habit. The gap is the only thing you actually control.
- The floor comes before the ceiling
It’s tempting to only ever want to discuss the “ceiling”—how high can we go? How much can we earn in investment returns?
But we cannot build a skyscraper on unstable foundations. Before we look up, we must look down. We must secure the “floor”.
This typically means liquidity and protection. It means planning towards having three to six months of accessible savings. It means having insurance that protects your income and your family if you can no longer work.
These are not “grudge purchases”. They are the price of admission for long-term investing. They ensure that when life happens—and it always does—you don’t have to interrupt your compounding earnings to pay for it.
- Cash feels safe, but inflation is a thief
There is a powerful illusion in finance. Holding cash in the bank feels safe because the number doesn’t go down. If you have 1000 bucks today, you will still have a thousand tomorrow.
But safety is relative. While the nominal value (the number) stays the same, the real value (what you can buy) is constantly eroding due to inflation.
Inflation is a silent thief. It doesn’t rob you by taking money out of your wallet; it robs you by making your money worth less every year.
To preserve your purchasing power, you must invest. You have to accept short-term volatility (prices jumping around) to avoid the long-term risk of running out of buying power.
Next time…
Establishing a gap, building a floor, and respecting inflation are the defensive plays. In our next post, we will look at the laws of growth: the magic of patience, the necessity of diversification, and the myth of the perfect plan.