Five things about money that rich people know

Of the five things I'm about to tell you to reach your maximum financial potential, I could have made 'Buy your own property' one of them. However, in this country, we're already born with the genetic code that translates as 'Buy property as soon as possible regardless of whether you can afford it or whether prices are simply out of this world!'

I don't need to encourage you to buy property. We're all aware of the benefits and are crazy enough about The Ladder already so, without further ado, here are my five things, and I'll try to mention home-buying as little as possible:

1. The more you borrow, the less stuff you'll be able to buy in your lifetime

More specifically, the more debt interest you pay, the less stuff you'll be able to buy.

If you borrow, you'll be able to buy more stuff immediately. However, after you've been repaying the debt for a few years, your best friend who earns the same as you will now have as much stuff as you - because you've been paying debt interest, and he hasn't borrowed a penny. What's more, from that point onwards, your friend will always have more stuff than you.

If you already have debts, the logic still applies. Reduce your debts and interest rates earlier to buy more in your lifetime.

It's debt that goes towards stuff that is the wrong debt. Hence, the same principle applies whether you buy beer, clothes or holidays. That's all stuff. However, a carefully chosen debt towards an investment can be a good idea. It may be to start up a business, buy a car for work, take out a mortgage, improve your home, or further education for a career. All these can pay for themselves by increasing your worth or eliminating costs.

2. Small amounts make a big difference in the long run

Can you afford £20 per month? Because you really have to get going on saving, and then investing - for example, in your pension.

If you don't save for things like holidays and Christmas presents, you'll be forced to borrow. You will also be forced to borrow if you don't start saving for emergencies and unforeseen expenses. We have to ring many such financial alarm-bells with varying fury throughout our lives.

Related how-to guide

Build up your savings

Here's how to get into the savings habit, find forgotten money, work out the real value of a savings rate and build up that emergency savings pot.

See the guide

When you have a decent pot, you can start saving for a house and/or investing in your pension. Did you know that £20 invested from 2009 to 2039 is the same as investing £80 from 2029 to 2039? (That's assuming an investment growth rate of 7% per year).

Even after taking rising prices into account, that shows money invested earlier goes a lot further. What's more, your investments are far safer if you invest smaller amounts over a longer period rather than bigger amounts for a shorter one.

Compare savings accounts with lovemoney.com

3. Do your own research

Almost all the information you need to make any financial decision is on the Web. Always cross-reference your research with different kinds of sources to reduce the chance of error, because many websites simply copy each other, mistakes and all. Use a selection of company, news, charity, university and government (e.g. Directgov) websites.

Seek free, independent resources for quality advice. This may be a charity like Citizens Advice or National Debtline, for example. Don't underestimate the usefulness of online discussion boards too, like our Q & A tool, where you can get different opinions and instigate useful debate.

If you have debts or want to avoid them, or if you need to learn to budget better in order to start saving, then get digging now.

4. You will lose a lot of money in your life if you let people and companies take advantage of you

Don't just take it when a company wrongs you. Many people do nothing, which is why companies get away with poor service, aggressive sales, and costly mistakes. Companies have wronged me to the tune of thousands of pounds in my lifetime, but by pursuing them with vigour I reckon I've got most of it back.

If you get poor advice or feel you've been treated badly, complain politely but firmly. If you're unsatisfied with the response or compensation offered, look for an ombudsman. The Financial Ombudsman Service, for example, is extremely powerful. It frequently forces financial companies to pay compensation. It can't hurt to try; it's free.

We can also pursue small claims of up to £5,000 cheaply through the courts. Normally it's not like TV; it's much more informal in small cases and the judge won't expect you to be able to quote the law.

Costs are typically from £50 to £150, and if you win you can expect the company to pay. If you lose you won't normally have to pay the company's costs unless the judge thinks you've seriously wasted his/her time. There's a guide on complaining to businesses and making claims on the Court Service's website.

5. Work hard, but don't buy a bakery

Work hard. There is absolutely no substitute for doing so. Your chances of being financially successful massively increase if you focus on your education, doing a good job and putting in some overtime.

The reason is because there is no such thing as easy money. Run away if anyone talks to you about easy money, getting rich quick, or investment opportunities with massive rewards and little or no risk. If you're being pressured or hurried to make a decision, that is a huge neon-lit scam-warning sign.

If the scheme was that easy and profitable, the seller of the scheme would just do it himself, and keep doing it again until the rest of the world discovered it. If there's no bakery in the city and you're the first to realise, you'd set up a chain of bakeries. You wouldn't sell the idea to set up a bakery to everyone else.

So be wary anytime someone tries to sell you a bakery.

Buy more stuff in your lifetime! You can massively reduce your debt costs by switching to a 0% on balance transfer card charging a fee of 3% or less through lovemoney.com, thus enabling you to buy more (of the right) stuff!

This is a classic lovemoney.com article which has been updated for 2010.