“For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.” – 1 Timothy 6:10
Before we really get into my “Money Rules,” I first want to say that money should not be what you are ultimately striving for in life. Don’t get me wrong. I like money just as much as the next person. I’m a capitalist at heart. But just as you often need to reframe circumstances (looking how events fit in the big picture), you also may need to reframe how you view money.
Money is great because it gives you the freedom to enjoy more luxuries, but as the saying goes, “the best things in life are free.” Once you hit a certain income threshold, more money doesn’t necessarily make you happier. In fact, if more money comes at the expense of not seeing your family or friends, getting a raise may not be worth it in your eyes. After all, we work to live, not live to work, right? If you begin to idolize money and the materialistic items it can buy, you’ve lost your way and can potentially risk losing your friends (or worse, your family) in the process.
So, with that preamble out of the way, here are my “Money Rules”…
1) Avoid consumer debt (not including your mortgage) at all costs. This includes car loans, credit cards, and personal loans. If you are already in debt, work hard to pay it off and STOP going further into debt. If you keep adding debt while paying it off, it’s like trying to remove water from a boat when there is a hole in it. You need to patch the hole first (stop going further into debt) before you can truly make substantial progress. How do you do this? Don’t get sucked into the materialistic world! Live an essentialist/minimalist lifestyle.
2) Learn how to budget and “balance your checkbook.” You need to get a firm grasp on what your income is and what your expenses are. You also need to know how much money is in your account (what are you starting off with?). If you would bounce a check buying whatever item you’re looking at, you can’t afford it, even if your credit limit allows you to buy it. Get your money habits under control…after you do this, then you can work the “anti-budget.” The anti-budget is for those who don’t like creating a budget and tracking every expense (me). I would only suggest this once you have good money habits.
3) Make sure you keep a minimum of $1,000 in the bank. Save this up as a starter emergency fund then don’t touch it unless it is a true emergency! That way, if Murphy (from Murphy’s Law) comes knocking, you’ll be ready.
4) Attack debt with a vengeance. Once you have your $1,000 in the bank, throw anything extra at debt. I like Dave Ramsey’s “Debt Snowball” method – starting by paying off the smallest debt first, then the next smallest, and so on and so forth. Sacrifice a little now to build a better future. Work more. Cut unnecessary expenses. Live frugally.
5) Pay yourself first. Always invest in yourself first…it’s too easy to run out of money and “not have anything left to invest” if you don’t pay yourself first. A minimum of 15% should be invested (into low-fee index funds) AFTER you are completely out of debt. When investing, remember to diversify your portfolio (and the portfolios within your portfolio). For example, you can invest in different types/sectors of index funds, different types of real estate (class A or B properties, single family or multi-family, in different cities, etc), etc.
6) If you can’t be trusted with a credit card, don’t have one. Don’t tempt yourself or put yourself in a bad position just because you think it’s “normal” to have a credit card. It’s also “normal” to be in debt. Don’t worry about being normal (if normal is average, don’t you want to be better than average?). If you do have a credit card, only use it to your advantage (buying what is NECESSARY and then paying it off early/on time every month). Remember, if you don’t have money in the bank to pay for it, you can’t afford it. Use a credit card as if it were a debit card, but rack up points/get cash back by using it on necessary items.
7) Your three biggest expenses are your house, your car, and your food. Find ways to minimize these expenses…
7a) Buy just enough home. Don’t buy for something you can grow into 7+ years from now. Chances are that you’ll probably move again. Your mortgage should never be more than 25% of your take-home pay otherwise you run the risk of being house-poor.
7b) If you are in debt or early on in your wealth-building journey, don’t lease a car and don’t buy a new car. Your family should not own vehicles (cars, boats, tractors, etc) whose values add up to 50% of your family’s annual salary. Vehicles go down in value. They are a liability, not an asset.
7c) Buy groceries and cook at home instead of going out to eat – it will save your wallet and your waistline. When at a supermarket, shop the perimeter, not the aisles. Eat fresh, locally-grown produce and grass-fed/free-range animal products. Grow/eat your own vegetables.
8) Have a 3-month emergency fund (covering your expenses) if you have a stable job…make it 6-months if your job is more volatile.
