The Top 20 Rules of Personal Finance

Out of our blessed 50 states, only 13 of them require high school students to take a personal finance course, according to this article. That is a crying shame, my friends.

Most every debt-riddled person will tell you that they “were never taught how to manage money”, either at home or at school. This “failure to communicate” (bonus if you can tell me what famous movie boasts these words) the basics of money management is, in my humble opinion, part of why the countries of America and Canada – both privately and federally – are in such an awful mess from a financial standpoint.

So I thought I’d whip out a “Top Twenty” list of basic personal finance rules that anyone, anywhere, can learn and follow. In my dream world this post would go viral and then nobody would have an excuse for not saving themselves from future financial disaster. 

Oh, and for your kids, here’s a link to my free e-book, How to Teach Your Kids About Money.

Top Twenty Rules of Personal Finance

Discover Your Financial Goals

Have you ever sat down and asked yourself what you truly want out of life? Don’t just say “I wanna be rich.” Seriously, now; what is it that you truly want? It’s time to start considering your dreams and goals and take control of your future. Ask yourself:

  • How much money do I want?
  • What do I want it for?
  • How can I work my income-earning skills and savings skills to reach those goals?

Stop playing the blame game (because it doesn’t do a da_n thing to help you) and start making a plan to make a better life for yourself by figuring out what you truly desire out of life. Don’t talk about material items. Talk about life goals. Peace. Freedom.

Do you want to live in a small village in Haiti and help the orphans? Do you want to live on a farm and homestead? Figure out your true dreams and wants. Then determine how much money it will take you to get there.

Set 6 month, 1 year, 5 year and 10 year financial goals, then create a plan to achieve those goals.

Stop Caring About What the Joneses Think

The reason I listed this second is because if you care about what the people around you think about what you wear, what you drive or how you live, you will never, ever reach your financial goals.

Let me say that again: If you care about what others think about you, you will never reach your financial goals. 

2 Corinthians 10:12b tells us “But they, measuring themselves by themselves, and comparing themselves among themselves, are not wise.”

Learn and memorize the following quote:

“Being concerned with your image in the eyes of others is not only foolish, it’s a habit that will ensure you stay broke forever.” – me 

Learn How to Budget

People so often shy away from budgets, often times because they are overwhelmed by the thought of learning how to budget or because they don’t want to instill the discipline of budgeting. As a former “budget rebel” I can tell you that learning to live by a budget has brought extreme peace to my life. Here’s a link to Dave Ramsey’s super easy-to-use free budgeting form.

Track Your Expenses

If you don’t know where your money is going, you can’t learn to direct it to help achieve your financial goals. Tracking your expenses will help you to understand why you don’t have the monetary security that you so desperately desire, because it will reveal the hidden leaks in your budget.

When we first went back and re-traced our 2012 spending (in an effort to begin a debt payoff journey in 2013), we found out that we were spending nearly $300 a month on eating out at fast food joints and store snack bars. What a ridiculous waste of money that was!

And the crazy part was that we were certain (before our spend-tracking days) that we “rarely” ate out.

Tracking our expenses was what I would say was the key factor in helping us to start overcoming our debt and build a savings account.

Pay Yourself First

Which leads me to the next discipline: Pay yourself first. I don’t care if it’s only $5 a week; you have got to develop a habit of paying yourself first (and leaving the money in your savings account) if you want to succeed at managing money successfully.

The dollar amount isn’t what matters; what matters is that you are creating a habit that will stick and will help you to be prepared for nearly any type of financial disaster. So start paying yourself first on a regular basis, and start today!

Make a Choice to Live Within Your Means

In other words, make a conscious decision that when it comes to spending, if you don’t have the cash you won’t buy it. This one decision alone can help you to avoid financial disaster in the future.

Communicate About Money

With your spouse if your married, with yourself if you’re single. It’s important to have discussions about where your money is going. It’s important to talk about purchases before making purchases over a specified dollar amount. It’s important for married couples to each have some “blow money” that they can spend every month without being monitored like a two-year old by controlling spouses.

Get on the same page with your spouse (or with yourself) and start talking about what you buy and why, and about whether or not those purchases are truly in line with your financial goals.

Overcome Your Issues

Many people have money “issues” from experiences they had growing up. In my case, it was a fear of not having enough, so I would spend in order to assure myself that we were “okay” financially. Yeah, that worked. NOT. 

In my husband’s case, he hoarded money to a seriously unhealthy (as in, not buying underwear when there was a SERIOUS need) level due to that same fear of not having enough.

Alas, we are finally learning to recognize those fears, what triggers them, and learning to reason with ourselves to get back down to a rational view about money, its purposes and its limits. And you can too.

Learn to Challenge Every Expense

It’s important when learning to spend your money in line with your financial goals that you sit down and have a face-to-face with every monthly expense that you have. Then, ask yourself the tough questions:

Is satellite TV really worth me not reaching my goal of debt freedom?

Is the tri-weekly restaurant night out with my pals really worth foregoing millionaire status?

Is the continual new car payment really worth me not being able to retire – ever?

Challenge every expense you have, then cut the ones that don’t truly bring fulfillment to your life.

Question Whether College is Really Right for You

The average college graduate with student loan debt graduated with over $30,000 in debt in 2015.

Only 27% of college graduates are working in fields related to their degree.

The college “experience” is sold to every single student in high schools these days – and that is a shame! Not everyone is meant to – or wants to – go to college. The world needs janitors and trash haulers and barbers and house painters just as much as it needs lawyers and doctors.

Before you go to college, ask yourself what your true working passion is, and act accordingly. If your heart’s desire is to be a janitor, then no amount of money in the world will make you happy if you choose a career as a lawyer.

Just Say “No” To Those Credit Card and Loan Offers

Just because companies will loan you money doesn’t mean you should take it. Remember: the goal of banks and credit card companies is to keep you in debt because it makes them money.

They’re not here to do you any favors, so don’t fall for the “You’re SO awesome that we’ll borrow you THIS MUCH money!” line. Truth be told, if you’re serious about achieving financial stability you only need one credit card.

Drive Used Cars and Pay in Cash

Brand new cars drop in value by 9-11% the minute you leave the dealership with your “new and shiny”. The average car payment in the U.S. today is $482 dollars.

If you bought a reliable used car with cash and invested that $482 each month over 67 months (the average new car loan term) at an interest rate of just 5%, you’d have  $40,998 at the end of 5 1/2 years.

Be Conservative with Your Home Purchase

Many banks these days will happily loan you a mortgage that requires a payment of up to 45% of your monthly gross income. That may seem affordable, but the truth of the matter is when you’re committing yourself to that big of a mortgage payment, any additional financial strain can put you into financial hot water real quick.

Do yourself a favor and be sure that your mortgage payment doesn’t exceed 30% of your monthly gross income.

Save for Retirement Every Month

And start now. Whether it be through an employee-sponsored 401k or a traditional or Roth IRA, be sure you put something away for retirement each and every month. The earlier you start, the better.

Make Financial Education a Priority

Read blogs. And books. Turn off the TV, put down the smartphone and make personal finance education a priority in your life. Many successful people have valuable information to share that will help you to improve your financial situation tremendously.

Have an Inexpensive Wedding

According to Lifehacker, the average wedding costs over $31,000. Average! That means many people spend well above that on their nuptials.

I’m not saying you should celebrate your special day with a potluck dinner (although that’s wonderfully fine as well), but most people I talk to wish they would have spent less on their wedding celebration and used that money to put toward the purchase of a house or to establish a healthy savings account.

Be Okay with Buying Used

Not in every case, but in SO many cases buying used is perfectly acceptable and saves a boatload of cash.

Our fave “buying used” find? We needed a tall extension ladder to paint our barn a couple of years ago. The stores sold them for $300. We found a used one in wonderful shape on Craigslist for $75.

Before you go and buy new, check out used options by scouring ads or asking around.

Wait 48 Hours Before Making a Large Purchase

Anytime you’re contemplating a large or unnecessary purchase, consider waiting 24-48 hours. Walk away from the situation, get back to real life and take the time to discover if this purchase is something that will really be worth the cash you’ll pay for it.

Involve Your Kids in Family Money Management

You don’t have to tell them everything, but by keeping your kids abreast of the household financial situation and informing them about how you earn, save and spend your money, you’re helping to instill good financial habits in them from a young age.

Make Giving a Priority

I’m a firm believer that giving money away has a “what comes around goes around” type of effect that will help you to prosper.

Giving money away will also help you to avoid developing too strong of attachment to your money.

Choose to use at least some of your money for doing good each month and for making a difference in the world. There are benefits to this habit that go well beyond monetary.

My hope is that this article will help people everywhere to learn the basics of money management and to use that knowledge to make a better life for themselves.

What’s your can’t-live-without money management tip?  

 

*Photo courtesy of Money

13 comments on “The Top 20 Rules of Personal Finance

  1. Great list! I’d also include re-evaluate your goals and budget regularly. You want to make sure that your budget is achievable and that it prioritizes your goals. Plus things change over time and you want your budget to change with them.

  2. Great list, Laurie!!

    I think understanding the power of compounding – both on the saving and the borrowing side – is critical. It’s so easy to think, “I’ll just finance this one purchase on my credit card for a month or two”, but with compounding interest, that debt can take on a life of it’s own! Trust me, I know!

  3. Good stuff — especially the house issue. Too many people still buy too much house. And with all the technology, it’s hard to not want to keep up with other people’s toys. I guess the only thing I’d add is to accept that you’re going to mess up. Don’t get discouraged, just take notes for next time.

  4. Great list, Laurie. I would also add that it’s a good idea to open up about personal finances. The fact that it’s a taboo topic exacerbates the lack-of-money-education problem you mentioned. If you’ve never talked about personal finances with anyone, start small – maybe by commenting on a blog post – or seeking a specific piece of advice from someone you think manages money well. Money management should not be a dirty secret.

  5. Awesome list Laurie 🙂 I like the one you said about having an inexpensive wedding. That’s what we did; my husband and I were married at the local courthouse. We’d rather have a nice honeymoon and spend the money on that, and that’s what we did 🙂

  6. Great list. Just recently followed the wait 48 hours rule and it saved us over 1000 dollars. It really does work! Nearly pulled out the credit card for some new living room furniture.

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