The 20 Most Important Personal Finance Laws To Live By
The 20 Most Important Personal Finance Laws To Live By
By Ben Carlson December 7, 2020
You could be the second coming of Warren Buffett as an investor but it won’t matter if you can’t save money and get your personal finances in order first. Saving money will always be more important than investing. As the saying goes, you have to crawl before you can walk. As a professional investor and money manager I constantly get questions from friends and clients about what they should be doing better. Here, I’ve distilled it down to 20 rules:
1. Avoid credit card debt like the plague
The first rule of personal finance is to never carry a credit card balance. Credit card borrowing rates are egregiously high and paying those rates is an easy way to negatively compound your net worth. If you carry credit card debt for a prolonged period of time, you’re not ready to invest your money in the markets.
2. Building credit is important
Likely the biggest expense over your lifetime will be interest costs on your mortgage, car loans and student loans. Having a solid credit score can save you tens or even hundreds of thousands of dollars by lowering your borrowing costs.
3. Income is not the same as savings
There is a huge difference between making a lot of money and becoming wealthy because your net worth is more important than how much money you make. Having a high income does not automatically make you rich; having a low income does not automatically make you poor. All that matters is how much of your income you set aside, not how much you spend.
4. 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. You have no control over the level of interest rates, stock market performance or the timing of recessions and bear markets but you can control your savings rate.
5. Live below your means, not within your means
Living within or above your means is how you end up going from paycheck to paycheck without every truly building wealth. The only way to get ahead is by living below your means and setting aside a portion of your income for the future.
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 leftover on the things that truly matter to you.
7. Automate everything
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