The real secret to personal finance isn't some sort of financial arcana. It isn't finding some loophole or discovering some magical "system" that will get your life in order.
Rather, it's about following straightforward principles day in and day out that inevitably guide you to a better financial state.
Here are 11 rules for practical day-to-day living that will help set you on a good financial path if you follow them carefully.
Rule #1: If you haven't used it in the last 12 months, sell it or otherwise get rid of it. This simple rule solves a bunch of problems all at once.
First, it keeps you from accumulating too much stuff. Many people live in houses that feel overfilled with stuff simply because they hang on to things that they somehow convince themselves that they "like" but yet never touch for years and years while those things sit on shelves or in closets or in garages gathering dust. If you're not using something within a year, it's not something you really love.
Second, this cycle of getting rid of unused things ensures that you get rid of items while they still have value. Something that's been in storage for a year or 2 likely still has value. Something that's been sitting around for a decade probably doesn't have a whole lot of value anymore. It's better to be able to put that money to work paying off debt than having it sit in your closet gathering dust.
One good way to do this is to make this a routine once or twice a year. Empty out your closet and get rid of everything you're sure you haven't touched in a year. If you're not sure, put a piece of masking tape on it and draw a big "X" on the tape (or put everything in a box and draw a big "X" on the box). Next time you clean, anything in the "X" box or with "X" masking tape on it can be sold off without worry.
Rule #2: If you have a use for something, borrow it first. If it's at all possible, try borrowing something before buying it. See if a friend has it and you can borrow it for a while. Check it out from the library. Go to a community event and try it out a few times.
This isn't always possible, of course, but you should strive to make it happen if you can.
Remember, a demonstration doesn't count as actually using something. Anything can look great in the hands of a salesperson. Focus on whether or not you actually have a use for the item.
Rule #3: If you've borrowed something and see yourself actually wanting to own it, start with a low-end version. Start with a version from a secondhand store. Start with a version bought off Craigslist. Start with the store brand version. Use that version and see whether or not it becomes a regular use item for you before you invest in a high-quality version.
The reason is that, if you're buying something new that's not a regular use item for you, you can't be certain that you will use it enough to get the value out of what you paid for it. It's only through repeated use that an item returns value to you. So, until you're sure of that time and use commitment, you're better off with a low-end version.
I often do this with books. If I read a book from the library that I like and want for reference or to potentially read again in the future, I'll start looking for a used copy or put it on my Kindle discount watch list so I can pick it up if it goes on sale. I'm also very active in used board game trading—in fact, I joke that most of the board games I own are actually "rented" because if they don't click, I'll trade it away.
Rule #4: Whenever you're about to spend money on anything, stop for 10 seconds and ask yourself whether you absolutely must have it right this second, and if not, put it down (or leave the website without a purchase) for now. This doesn't mean you won't ever buy it, just that you're putting it off for now and thinking about it a little more.
That simple rule, if constantly applied, brushes off a lot of unnecessary purchases. The key is to actually apply it seriously and consistently. You need to get into the routine of thinking about everything you're going to buy in this way so that if it's not essential (or part of a planned splurge or part of a "free spending" segment of your budget), you're in the routine of just putting it back and not buying it.
It's important to note that it's usually a good idea to avoid sales unless there's something specific you're planning to buy already. The fact that "it's on sale" is often used as an easy justification to buy something that's nowhere near a need.
Rule #5: Whenever you put something down because of Rule #4, wait a month and see if you still want it. I'll often write down the item for further reflection later and then perhaps research it a bit online. What I find is that if I give it a few days, most items fade pretty quickly and I'll either completely forget about it or I'll find that I don't want it (and often wonder why I even did want it).
This is a good use for a note-taking app on your phone or (my preferred method) a pocket notebook. Just write down what that item is that you were thinking about and it'll subconsciously feel like you "took action" regarding that desire, so it'll take the edge off of the desire to buy it immediately. Plus, it gives you that reference point to look it up later.
I use this a ton when I'm in a bookstore. That list of books ends up getting checked out at the library (rule #2) and then, if I do like it, I'll pick it up used (rule #3). (These rules have lots of nice synergies.)
Rule #6: If you still want something after a month, start carefully shopping around for it—after all, you've waited a month, what's a few more weeks of looking for a great price on it? If an item is still on my mind after a month, that's the point at which I'll start shopping around for it. I'll start looking for it used if it's an item I haven't owned before (like rule #3), or if it's a replacement, I'll heavily research which item I want and start shopping around for it.
Both of those paths take a little bit of time, but they both save a lot of money. The thing is, if I've already waited for a month to buy that item, waiting another few weeks to find it at the right price and to make sure I'm getting the right model is not a big deal.
Rule #7: If you want to save for a big goal, make that savings automatic—ideally, have it taken straight out of your paycheck. It is very unlikely you'll miss it. There's a pretty simple principle that guides a lot of our human existence: the path of least resistance. In almost everything we do, we tend to choose the option that offers the least overall resistance—it takes the least amount of effort when everything is considered (there are some exceptions, but they're usually related to a personal passion).
What this means is that if your savings plan requires you to constantly take action to maintain it, you're very likely to eventually fall off the wagon with it. The best way to make progress toward any financial goal is to automate it, so that all payments and deposits are made automatically and you actually have to make an effort to stop it.
Sign up for your 401(k) at work and turn on automatic payments. Start a Roth IRA and do the same. Set up an automatic extra credit card payment through your online bill pay. Set up an automatic small weekly transfer from your checking to your savings to build up an emergency fund.
"But I barely make ends meet as it is!" A funny thing happens when you start automating. You find that you start to adjust your spending to match what's left in your checking account because there's less resistance to doing that than dealing with overdrafts. It doesn't happen immediately, but it does happen.
Rule #8: It's almost always cheaper to do it for yourself. If it seems hard, it's almost always because you just need to do it several times to build the basic skills. This is true for everything from cooking meals, to sewing on a button, to changing oil, to dealing with a clogged toilet—and many, many other things. In each of those cases, it can be tempting to throw your hands up and just hire someone to do those things because they seem more challenging than they're worth. Go to a restaurant or get takeout or delivery. Take a shirt to a tailor. Go pay for an oil change. Call a plumber.
The problem is that those choices are expensive and they really start to add up, plus the tasks really aren't all that complicated. They only seem complicated and hard because it's a skill you haven't practiced yet; the more you practice that skill, the easier it gets, and the less of an obstacle that task presents.
The solution is obvious, too: just take on those simple tasks as often as possible, even if it seems hard. Make lots of meals. Sew on those buttons. Do your own oil change. Figure out how to fix the minor toilet issue.
Once you do those things enough times, they cease to seem scary and hard and they no longer feel like a lot of work. They're not intimidating anymore and your skills will have risen to the point where it really isn't much work anymore.
For example, I feel almost no reason to go to a restaurant because it's more efficient to make something at home. My meals at home are usually tastier and far less expensive. For me, eating out happens for special occasions.
Rule #9: Money doesn't buy happiness. If you're unhappy, throwing money at the problem won't solve it. Many people end up buying things to make themselves feel better—"retail therapy" is quite a thing, and people often do it with small perks, too.
The catch, of course, is that the little burst of joy you might get from trying to "buy" happiness never lasts. It fades surprisingly quickly and then you're back where you started, except with less money (you might also now own an ill-considered item or 2).
If you're feeling unhappy in the moment, find a mood-raising outlet that doesn't cost money. I go for a walk in the woods or meditate or write in my journal or curl up with a book.
The more important approach, though, is to put in effort to cultivate a life that naturally bubbles with joy. Make sure your mental health is in order. Get regular exercise. Build lots of strong relationships. Put aside blocks of time for things you care about. Do things for others on a consistent basis. Those are the building blocks of a happy life, not a shopping trip or some coffee.
Rule #10: The personal finance success you want isn't going to be easy, and it's not going to come tomorrow. You're going to have to work for it. You're going to have to be patient. Each day is a few steps in a long journey. Evaluate your financial success and financial progress each month or, even better, each year, rather than each day. Using the other 9 rules in this article consistently in your life will make a profound effect on your finances, but the results won't be obvious immediately. It will take at least a month or 2 to even see an impact in your checking account, and you won't start seeing big results in terms of paying off debt or building up a nice balance in an account for several months.
That's why it's important to judge your behavior on a daily basis and your results on a much less frequent basis—monthly at most and ideally quarterly or annually. Your success on a daily basis is measured on your choices. Your success on a long-term basis is signified by the results of those choices.
Don't get the 2 confused or you'll be disheartened. If you weigh yourself after a week of dieting, you'll be depressed. If you check your account balances after 3 weeks of good financial moves, you'll be bummed out. Instead, pride yourself on changes in your daily behavior and strive to keep it going. Look at actual results later.
Rule #11: If you're trying to succeed at one of the other rules and mess up, don't beat yourself up over it. Tomorrow is another day. Instead, ask yourself seriously where you went wrong and spend some time visualizing yourself doing it right the next time. Although it's absolutely true that you should be measuring short-term success on your behavior, you're asking for failure if you demand nothing short of perfection from yourself. You will make mistakes. You will fall short. You will make the wrong choice sometimes.
The key is what you do when you fall short. Don't beat yourself up over it. Instead, step back and ask yourself why you went wrong. Why did you make this mistake? What conditions were present? What feelings were running through you? What can you do otherwise when that situation comes up again? How can you nip those feelings and those situations in the bud so you're not in that situation again?
Consider those questions, then come up with a better approach you could have used in that situation. Then, visualize yourself actually using that better approach. Imagine yourself going through that situation where you made the mistake, but doing it right instead. Let that run through your head over and over again for a while and you'll find that you're much more likely to handle that speed bump well going forward.
These rules are a starting point for creating a set of life behaviors that will lead to long-term financial success. They're not magic recipes that will instantly make you rich. Rather, they'll set you on a different trajectory, one that gradually points you in a better direction without requiring major upheavals of your life. Personal finance success is a long march, and it's all about taking good steps.
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