My Ten Commandments of Personal Finance

Maybe you heard about that infamous Kelton study done a couple years ago that found that Americans could identify more ingredients in a Big Mac than the individual Ten Commandments. To wit: eighty percent of Americans knew there were two all-beef patties in a Big Mac, but only 6 in 10 could identify “Thou shalt not kill” as one of the Ten Commandments.

My anecdotal research verifies the Kelton study.

I know a Big Mac has two all-beef patties, special sauce, lettuce, cheese, pickles and onions — all on a sesame seed bun, no less. But I can only name eight of the Ten Commandments. (Don’t tell my third grade catechism teacher, Sister Nora.)

I wonder if Sister Nora would feel better if I told her I can name all ten of my Personal Finance Ten Commandments? I faithfully try to follow these little nuggets of wisdom every day in order to make my personal financial life run as smoothly as possible:

1. Spend less than you earn.

This commandment is number one for a reason: Those that follow it are destined for financial freedom. Be a disciple of frugality. Remember, the word disciple is derived from its root word “discipline.” There is a lesson there for those who are willing to take it.

2. Thou shalt remember to always pay thine self first.

Before you pay for anything, be it the utility bills, mortgage, groceries, etc., you need to save a portion of your income. Start by taking advantage of your employer’s matching contribution to your retirement savings plan, and also building an emergency fund amounting to at least three months of expenses. Use automatic deductions and start slowly, then gradually increase your savings rate and watch your savings grow.

3. Behold the power of compound interest, the most powerful force in the universe.

The greatest lesson you can ever bestow upon your children is the power of compound interest. Working teenagers, especially, have the opportunity to set themselves up for life with relatively little income, assuming they have the financial discipline to let their accrued savings grow over time. That being said, the benefits of compound interest aren’t limited to kids and teenagers, but they do have the most to gain as the longer the time horizon, the greater the power. I wish I had taken this more seriously when I was a teenager making pretty good coin at the grocery store.

4. Thou shalt always track thine household income and expenses.

Trying to get a handle on your personal finances without knowing how much money you are earning and where it is all going is tantamount to trying to drive with a blindfold around your eyes. Those who are deep in debt have run their car off the highway. Take the blindfold off. If your destination is good financial discipline, you’ll need to see where you are going so you can get back on track.

5. Thou shalt understand the difference between a want and a need.

Being able to distinguish between wants and needs is directly tied to your ability to accept personal responsibility. When taken down to the most basic level, I will argue that all of us have only four or five primary needs. Those needs are food/water, clothing, shelter, transportation (for most of us), and health care. Everything else is a want.

6. Don’t be a financial jellyfish; Remember the Budget and keep it holy.

Before anyone can expect to successfully manage their household finances, they have to commit to following the household budget. Following the household budget requires the ability to exercise self-control. Unfortunately for many people, asking them to exercise self-control can be akin to waiting for a jellyfish to spontaneously generate a spine. It’s easy sticking to the household budget — as long as you refuse to be a financial jellyfish.

7. Thou shalt avoid paying interest.

This is my philosophy: When it comes to personal finance, unless it is the family home, if you can’t afford to buy something you want, then you must save for it — that includes a car. You can’t afford to buy a new car, you say? Save up for a nice used one. Cars lose roughly half their value soon after they are driven off the lot. The only exceptions to this rule that I would consider are starting up a business and/or paying for higher education.

8. Ensure thine spouse is involved in the financial decision process.

It is absolutely critical that households with married couples communicate. Keep your lines of communication open, regularly assess and update your goals and progress, and be willing to compromise. Better yet, split up the financial duties. In our house the Honeybee and I work as a team; I perform the duties of the Household CEO while she handles the Household CFO tasks.

9. Blessed are those who understand that high wages do not beget financial freedom.

A high household income can never be assumed to be a guarantor of financial freedom. The good news is that financial freedom can be achieved no matter what your household income happens to be. It is a state of mind, as much as it is a state of being. Those that understand this have a much easier time keeping their personal finances under control than those who don’t.

10. Thou shalt undertake your chosen vocation for love, not money.

Most successful people are successful because they love what they do for a living. Life is too short to be doing something solely because it pays a good wage. We achieve satisfaction at our vocation, whatever it may be, through a job well done. For most people to be able to do this on a consistent basis, they have to love what they do. For example, if you study to be an engineer solely because engineers make good money, I guarantee you that in the long run you would have been better off doing something you truly loved. So do what you love to do and the money will follow. I promise.

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