Monthly Archives: October 2016

Personal Finance Rules That You Need To Know

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.

Financial Stability

If financial independence is the dream, financial stability is the first adult step along the path towards that vision.

On the final day of the year, fifteen years ago, I returned home from a weekend away to find my belongings on the lawn in front of the house I was renting. (I used the Internet Archive’s Wayback Machine to fact-check myself using my old, anonymous personal blog, my first time reading those entries in over a decade.)

My roommate thought I was moving out at the end of December, and when I wasn’t around, she moved two people into the room I had been occupying for several months. I had been planning to move out at the end of January, and the roommate knew this. But my name wasn’t on the lease, so perhaps she thought she could do whatever she wanted.

A later entry brought back the memory of a related event: I visited that apartment again ten days later to pick up a few remaining items, and the new occupants were moving out because that roommate committed some kind of check fraud. But I digress…

Being forced out of my living space with no notice on New Year’s Eve was the end of a particularly bad year. I lost a job, lost my car, and lost my girlfriend. I had moved to northern New Jersey for a job I no longer had. I was in my mid-twenties, but I wasn’t financially an adult. I survived by spending on credit cards, avoiding student loan bills, and accepting help from parents.

Debt Repayment Plan

A few weeks ago I was helping a client create a debt repayment plan and I found a great free tool that I’d like to share with you today.

If you have student loans, credit cards, a mortgage, or any other debt that you’re working to pay off, this tool will help you do it as quickly and effectively as possible.

Specifically, it will help you:

  • Organize your various debts in one place
  • Determine the exact order in which to prioritize your debts
  • Figure out exactly how much money to put towards each debt every single month from now until the last one is paid off
  • See how much money you can save by putting extra money towards your debt and/or prioritizing them the right way

Below I’m going to walk through the most helpful features of this tool so you can see how it works. But first, here are the links to get it for yourself:

  • Excel version: Vertex Debt Reduction Calculator (Excel)
  • Google Sheets version: Vertex Debt Reduction Calculator (Google Sheets)

Let’s dive in!

Quick note: The free version can handle up to 10 loans. If you have more than that, there’s a paid version that costs $9.95 that can handle up to 40 loans. You can get it here. (And no, I’m not affiliated with this company and don’t get paid to recommend them.)

The 3 most helpful features

The spreadsheet comes with a full set of directions that you can follow to fill it out yourself. I’m not trying to duplicate those directions here, but I would like to give you a sense of how this tool will help.