Personal Finance

Financial success happens when you live by the rules of personal finance.  Some of these rules are from Harold Pollack, a contributor to the Washington Post’s Wonkblog, who handwrote his rules on a small index card, but I have modified this list a bit to show the financial rules that I have lived by which have served me well.  I’m not a financial advisor so always check with your personal financial advisor for personalized advice.

ALWAYS live below your means and save at least 20% of your money.  Don’t fall into the trap of trying to keep up with the Joneses.  Live simply, buy quality goods that last when needed.

Buy inexpensive, well diversified mutual funds such as Vanguard total stock market index funds and pay attention to fees. Avoid actively managed funds.  The power of compounding over decades means you will end up with great returns over the long run.  Ride the ups and downs, and even better, buy when the stock market is down (when stocks are on sale).  If you will need funds within 10 years, though, it may be better to keep it in bonds or cd’s.

Only buy or sell an individual securities with disposable money – even experts can’t beat the average returns of the stock market on a regular basis.

Pay your credit card balance in full every month.  If you can’t, then you should take a look at your lifestyle and adjust accordingly.  You are paying a lot more for everything you put on a credit card when you pay interest.

Maximize tax-advantages savings vehicles like Roth, 401k’s, SEP and 529 accounts.  Solo 401k’s might be an awesome way to pay less in taxes now by deferring income and contributing to a retirement fund if you have a small business.

If you hire a financial advisor, use a fee-only planner and make sure they are committed to a fiduciary standard.

Have adequate life, auto, business and possibly umbrella insurance if you have a lot of assets, and an estate plan (wills, revocable living trusts, etc.).

If you do not follow all of these basic rules of personal finance, then you may not be living within your means and may need to adjust your lifestyle to fit the truth of where you are financially.