20 Rules of Personal Finance

Meb Faber asked a bunch of us bloggers to give him our top 3-5 most read blog posts of the year. I looked back at my trusty Google Analytics for the first time in a while and discovered that two of my top three in terms of readership were personal finance-related posts. I’ve always said that personal finances are more important than portfolio management, but I still think there’s probably not enough people writing or providing education on the topic.

So I’m going to make a concerted effort to write more about personal finance in the coming year.

Here’s my list of 20 personal finance rules:

1. Salary is not the same as savings. Your net worth is more important than how much money you make. It’s amazing how many people don’t realize this simple truth. Having a high salary does not automatically make you rich; having a low salary does not automatically make you poor. All that matters is how much you save out of your salary.

2. Saving is more important than investing. Pay yourself first is such simple advice, but so few people do this. The best investment decision you can make is setting a high savings rate because it gives you a huge margin of safety in life.

3. Avoid credit card debt like the plague. Carrying credit card debt is a great way to negatively compound your net worth.

4. Live below your means, not within your means. The only way to get ahead financially is to stay behind your own earnings power.

5. But credit itself is important. Likely the biggest expense over your lifetime will be interest costs on your mortgage, car loans, student loans, etc. Having a solid credit score can save you tens of thousands of dollars by lowering your borrowing costs. So use credit cards, but always pay off the balance each month.

6. If you want to understand your priorities look at where you spend money each month. You have to understand your spending habits if you ever wish to gain control of your finances. The goal is to spend money on things that are important to you but cut back everywhere else. And if you pay yourself first you don’t have to worry about budgeting, you just spend whatever’s left over.

7. Automate everything. The best way to save more, avoid late fees, make your life easier and get out of your own way is to automate as much of your financial life as possible. It probably takes me one hour a month to keep track of everything because it’s all on autopilot.

8. Get the big purchases right. I know I shouldn’t be so judgmental but whenever I see $50-$70k SUVs on the road or enormous McMansions the first thing that pops into my head is, “I wonder how much they have saved for retirement?” Personal finance experts love to debate the minutia of brown bag lunches and lattes but the most important purchases in terms of keeping your finances in order will be the big ones — housing and transportation. Overextending yourself on these can be a killer.

9. Build up that savings account. I don’t even like calling it an emergency savings account anymore because most of the time these “emergencies” are things you should plan on happening periodically. You have to have liquid assets to take care of things when life inevitably gets in the way.

10. Cover your insurable needs. This is another huge personal finance margin of safety item. Just remember that insurance is about protecting wealth, not building it.

11. Always get the match. I can’t tell you how many times I’ve talked to people who aren’t saving enough in their 401(k) plan to get the employer match. That’s like turning down a tax-deferred portion of your salary each year. I’d like to see more people max out their retirement contributions, but at a minimum you should *always* save enough to get the match.

12. Save a little more each year. The trick is to increase your savings rates every time you get a raise so you’ll never even notice that you had more money to begin with. Avoiding lifestyle creep can be difficult, but that’s how you build wealth.

13. Choose your friends and neighborhood wisely. Robert Cialdini has written extensively on the concept of social proof and how we mirror the actions of others to gain acceptance. Trying to keep up with spendthrift friends or neighbors is a never-ending game with no true winners.

14. Talk about money. It takes all of 5 minutes before I hear about politics in almost any conversation these days, but somehow money is still a taboo subject. Talk to your spouse about money. Ask others for help. Don’t allow financial problems to linger and get worse.

15. Material purchases won’t make you happier in the long-run. There is something of a short-term dopamine hit we get through retail therapy but it always wears off. Buying stuff won’t make you happier or wealthier.

16. Read a book or ten. There are countless personal finance books out there. If it bores you to death then at least skim through a few and pick out the best pieces of advice from a few different sources to test out. This stuff should be taught in every high school and college, but we’re often on our own. That means you have to take the initiative.

17. Know where you stand. Everyone should have a back-of-the-envelope idea about where their net worth (assets – liabilities) stands. Before knowing where you want to go you have to know where you are.

18. Taxes matter. I think everyone should try to do their own taxes at least once just to understand how it all works (maybe with an assist from TurboTax). It can be maddeningly complicated, but it can help you save money over time if you know where to look. Take advantage of as many tax breaks as you can and always understand your personal tax situation.

19. Make more money. Saving and/or cutting back is a great way to get ahead, but it’s an incomplete strategy if you’re not trying to earn more by enhancing your career. Too many people are stuck in the mindset that there’s nothing they can do to get a better job, take on more responsibilities or earn a higher salary. That’s nonsense.

20. Don’t think about retirement, but financial independence. The goal shouldn’t be about making it to a certain age so you can ride off into the sunset, but rather getting to the point where you don’t have to worry about money anymore.

You make disagree with some of these but remember — personal finance is personal. Feel free to share any others I may have missed in the comments.

These are the two popular posts from this year that I referenced above:
10 Purchases That are Worth the Money
Money Revelations in my 30s

Now here’s what I’ve been reading this week:


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Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.

  • Chaddogg

    I don’t remember where I read it, but I’ve always liked: “Buy assets, sell liabilities.”

    In other words, spend money buying things that appreciate in value: yes, obviously stock/bond index funds, but also a good education that will lead to higher career earnings, a home (which may appreciate in value but also might keep your housing costs relatively fixed thanks to a good fixed rate mortgage), high-quality daily-use products that last for a long time making their lifetime costs low, or even a really great vacation that gives you memories that last forever (to the extent memories are “assets,” which I believe they are), etc.

    And “selling liabilities” is the flip side to that — don’t buy a flashy car that loses value the second you drive it off the lot when you could get around safely/more reliably for less; “sell” your high interest credit card debt by paying it off quickly; don’t buy things that don’t add meaningful joy/long-term satisfaction to your life….

    • ratiocination

      Another example of selling a liability: I once read that you get triple the return of a AAA bond if you insulate your house. (Obviously that depends on interest rates and where you live. But still.)

      • Hurrow

        Imagine seeing you here!

        • ratiocination

          I’m here every day. I always learn things from what Ben writes and from the other writers he links to.

          • Hurrow

            I agree. It doesn’t always apply to my clients, and inherently a lot of the US specific stuff isn’t useful in Australia, but there is almost always still something to think about. Abnormal Returns is another favourite site, both for the links and the writing.

          • ratiocination

            Not familiar with Abnormal Returns – I’ll check it out – thanks!

    • James

      It’s a phrase from one of the popular books, maybe ‘your money or your life’ or ‘rich dad, poor dad’. Or maybe you’ve been to mrmoneymoustache.com

    • Ben

      Good one. I like it

  • retiredboomr

    Great advice. But seriously dude, you need to proof read what you write and not just use spell check! All the wrong words in your article were spelled correctly, but they were still the wrong words!

    • Ben

      What words? Seriously dude, poor grammar really doesn’t bother me. This is a blog, not a newspaper.

  • Some really important rules. There should be a mandatory high school/college course for all students that could use these 20 rules as the lesson plan.

    Didn’t see “get your financial advice from your brother-in-law over holiday dinners” listed, what gives?

    • Ben

      Seems like everyone already gets that one whether they like it or not 😉

  • Excellent words of advice here Ben. A lot of personal finance advice (good advice that is) boils down to more psychology than anything (why do I do the things I do?) and this seems to help folks in that regard.

    • Ben

      Agreed. Most things in life are psychological in nature, which is what makes it hard for so many people.

  • Jim Clark

    #21 Time is the most powerful force in the universe, especially in investing

    • Ben

      good one. also why young people have the greatest asset of all

  • #21 – find a spouse who is more thrifty than you.

    Nick de Peyster

    • Ben

      very true. have to be on the same page

  • DrSax99

    I am almost 60 years old, and personal finance has been my hobby and passion for 30 years. This could be the most important list I have read; it’s the road map on how I have lived my life for 3 decades. This allowed me to semi-retire in July 2015 at age 57, now only working 25 hours a week, taking a job at a small start-up. It’s not just financial freedom, it the freedom to enjoy life , work, and leisure.

    • Ben

      Nice. thanks for sharing. I think having the ability to take on work because you want to and not because you need to is a huge advantage.

  • alain

    # 21 sell the telly or cancel the expensive network cable/satellite dish subscription (including netflix)
    # 22 then use the free time to switch to free sports / recreational activities, and invest in educational reading
    # 23 eat well while losing surplus fat, this decrease doctor/health costs and trim grocery bills (cut sugar use everywhere, use vegetable oil for cooking, become a partial vegetarian, etc).
    # 24 buy quality second hand stuff whenever you can, you can still flash cash around, but it doesn’t kill the bank account (if you still remain a compulsive buyer, after some training to downsize the mental urge to splash)
    # 25 regularly resell your surplus stuff, to turn it back into cash, instead of spending even more money to rent a supplementary storage room, to store all the stuff you once bought and never use.
    # 26 always postpone any (eventually damaging) buy or sell activity for some time, to avoid impulsive (costly) decisions/mistakes.
    # 27 make lists of targets you want to achieve, so that you get focused, can keep track and measure progress (or total lack of it).
    # 28 be realistic in your goals, to avoid disappointments down the road (like wanting to lose 50 pounds in 2 months, instead of realistically forecasting one year for it to get done, idem dito for your monetary targets)
    # 29 diminish utility bills by investing in your own long term alternatives (switch to the cheapest phone/internet access pay program, ditch expensive smartphone data use pay programs by buying a simple cell phone, invest in solar home PV panels to keep your utility electric bills low, switch to cheaper utility suppliers, install a rain water collection cistern to flush toilets and do the laundry with rain water / well water and thus pay far less in city water bills, invest more in decent home insulation to reduce heating bills, etc) so that your fixed monthly “utility” cost bills are kept minimal and known
    # 30 do your own cooking, thus go sporadically to restaurants, avoid expensive junk food and make your own coffee / tea (switch to water instead of using Redbull, to make your coffee)
    # 31 buy only the best energy efficient appliances, and keep a smaller fridge, so that you buy less food, and have to go shopping more often for it (thus reducing the urge to buy and eat more stuff, because you can’t store it).
    # 32 go live near work and near a shopping mall area, you win travel time and reduce expenses (you can walk or use a bike instead of a car).
    # 33 learn to plan over several years, analyse your bank etc costs, do more with less.

    • Ben

      impulse one is a biggie for me. have to do your research and think about large purchases

  • Ravichand

    Disagree with Point 7 (Automate everything) and 13 (Choose your friends and neighborhood wisely). My two cents:
    Automating all payments like utilities leads to loss of control on costs and cost saving measures . Let me give a personal example. i had set up auto pay for my mobile bill payments and roughly similar amount was being debited every month. A year or so later when the auto pay failed for a month i manually made the payment, of course after scrutinizing the bill in detail only to find i was not in an optimum plan paying for features i don’t need. I have continued to set standing instructions but crucially there are no direct debits without my confirmation.

    i understand the social proofing concept but i feel there is little choice for many w.r.t neighborhood where they stay. As a famous Indian proverb says ” Lotus blooms in the dirty muddy waters” . I feel it depends a lot more on who you are and what your concept of money is. You can stay near a casino yet not gamble.

    • Ben

      Unfortunately the pull of the casino is far too difficult for a lot of people to turn down. Very few people can avoid the temptation when it’s staring them in the face. It’s human nature…

  • Forget the Latte Factor. This one is correct:

    “Get the big purchases right…Personal finance experts love to debate the minutia of brown bag lunches and lattes but the most important purchases in terms of keeping your finances in order will be the big ones — housing and transportation. Overextending yourself on these can be a killer.”

    If you can’t get the big stuff right, forget or don’t sweat the small stuff.

    • Ben

      Yup. I had this one backwards at first but clipping coupons isn’t going to help you build real wealth.

  • Be Net Worthy

    This is all solid advice Ben. Unfortunately, the most important part is the most boring. Pay yourself first and save more each year. Who wants to hear that? They’d rather talk about the next hot investment or portfolio allocation model.

    Thanks for sharing – good stuff!

  • Love this article – you touch on so many important points. And the social thing is huge – if you hang out with people who spend a lot of money, it can be tricky to be frugal when with those people – being frugal and living within one’s means is so much easier when spending time with like-minded people.

  • Nick True

    Great article Ben! This is the first time I’ve stumbled across your blog and I couldn’t have said these 20 better. I love “always get the match.” It’s amazing how many guys I work with that don’t do this one simple thing.
    Great list!

  • Desi H

    Very true advise having a high salary doesn’t mean u r rich, but I think it’s important to instill good financial habits among the teenagers. Its important for everyone to realize the importance of money. Desi Hisab is one such app that helps to track expenses.