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.