Friday, September 7, 2012

Axiom 27: A Guide to Sane Finances in an Insane World

"Better to go to bed hungry than wake up in debt." -Proverbs

"Pay as you go is the philosopher's stone." -G. Randall

I guess I was lucky enough growing up that I was instilled with some solid common sense basics about how to handle my personal finances. No matter how little money I've ever earned I've never been deeply in debt. I've always had spare money in case of an emergency and I've always had money to go out and do the things I want. It wasn't until later in life that I realized that a large number of people in the United States are absolutely consumer crazy and whacked out of their heads when it comes to being responsible with their money.

I can't say that I don't understand where they are coming from though. Most people never grew up with a financially successful role-model to learn from. Their only understanding about money has come to them from lenders who's goal is to coerce people to borrow more money and pay it back with interest. Let's also not forget the books, CDs, and workshops that the financial gurus are selling to help you straight out your finances - gimmie a break! Sound personal finances is not that hard.

Let me help you stop the madness now. Here are the basics to sound personal finances:
  1. You should always spend less each month than you earn. This includes credit card purchases.
  2. If you're behavior now is to spend more money than you earn, you'll do the same in the future no matter how much money you make. You can easily be a broke rich person earning $15k a month with $20k month in expenses. More money is not the solution.
  3. You should save at least 10% of the money you earn each month. Save this money in a separate bank account and invest it safely.
  4. If you lend money to a friend, assume you'll never get it back. Remember that lending money has caused the demise of many good friendships.
  5. No matter how good you are with your money if your significant other is not at least decent with their finances you'll have a very tough time. Money problems are a significant cause of stress and divorce in marriages.
  6. Your lifestyle will try to absorb any extra income you receive and grow as you earn more money in life. Remember this and don't let it get out of control.
  7. Always pay your credit card off at the end of the month or at least have a set plan to pay it off as quickly as possible.
  8. Remember that if you own too many things that they will start to own you. No one will care about your 2,000 disc blu-ray collection 30 years from now. Learn to have self-control and curb your shopping addiction.
  9. A dollar is just a piece of paper whose purchasing power decreases over time. Excess money in savings should be invested wisely rather than lose value in a savings account.
  10. Avoid buying cheap things at cheap prices or quality things at expensive prices, It is always better to find quality things at bargain prices if possible, no matter how much money you make.
  11. Be a man (or woman) of your word when it comes to finances. It you say you'll pay someone at a certain time, do it.
  12. Get in the habit of paying your bills as soon as they arrive so you don't forget about them or spend the money on something else.
  13. Look at your bank account at least once a week so you can track your expenses. 
  14. Don't overpay for things. Something is only worth what someone else is willing to pay for it.
  15. When someone is trying to hard sell you something be aware of any hidden motivations. A steak on special at a restaurant would make me think that the meat is old. An electronics employee pushing an additional warranty on a TV makes me think that the warranty-claim rate is very low and it is a high-profit sell for the business.
  16. If the price is suspiciously cheap, or if it sounds too good to be true, then it usually is.
  17. There isn't anything free in life. Everything comes at a price.
  18. Diversify your your investments because the value of everything is cyclical.
  19. You can't have a million dollar dream with a nickel's worth of problems.
  20. Rich people are lenders, poor people are debtors. Be a lender as soon as possible.
  21. Money is only the vehicle to the lifestyle you want, it is not the goal in itself.
  22. More money will only help your happiness level to a point. Once your basic necessities are covered money only adds happiness through freeing up your time and helping you access new opportunities and experiences.