In 1987, I was a child in upper elementary school. Believe it or not, I still have some journal entries from that year, the writings of an overly curious little boy that I think would fit right in with my own children. My best friend in the world was about to move far away and there was no interest; believe it or not, I managed to get back in touch with him in the last few years and we actually have quite a lot in common, though we live fairly far away from one another.
In 1997, I was a college freshman. I knew my wife-to-be, but wasn’t dating her or romantically interested in her. Most evenings, I read books or played video or computer games. My closest friends in the world lived on my dorm floor; one of them still remains my best friend (besides my wife), while I am still in touch with the other.
In 2007, my wife and I lived in a tiny apartment. I worked in a research lab doing data mining. We had one child, a toddler. We watched television together most evenings. My wife’s closest friend (who we’ll call Bee) used to come over regularly for wine tastings. My closest friend came over about once a month or so and I felt that friendship slipping away, at least in part because my friend wasn’t really sure what to do around infants; it would recover.
In 2017, my wife and I live in a nice mid-sized family home. I am a full time writer working at home. We have three children, and that toddler is now a pre-teen. We usually sit in the living room together most evenings, while we both either get some work done or read while cuddled up together. My wife’s closest friend now lives across the street from us; we haven’t seen Bee in several years. My closest friend is still the same person, but now I see him at least weekly – I worked to renew that friendship.
Lots of details changed, but most of the principles I live by stayed the same.
Spend less than you earn and do something financially productive with the difference. I picked this one up in the mid 2000s.
Unless there is a clear long term benefit to buying something, don’t buy it – figure out another way to achieve whatever you want to be doing. Again, I picked this one up in the mid 2000s.
If you must carry debt, make sure it’s low interest debt. I also picked this one up in the mid 2000s.
Having money in a savings account will help you in all kinds of emergencies. I’ve known this since I’ve had money.
Put aside focused time for your most valuable relationships, the ones you couldn’t live without but can easily take for granted. I’ve done this since I was a kid.
Treat others as you would like to be treated. I’ve also done this since I was a kid.
Treat wasted time as lost money or lost meaningful experiences. This was taught to me by my first real adult mentor, who showed me again and again how true it was.
Be the person you want to be around. I figured this out in high school and have stuck with it ever since.
Ask questions if you don’t understand, as it’s better to admit ignorance and grow over time than to feign knowledge and lose the respect of others. Again, this was another one taught to me by my mentor.
Most people don’t realize that they’re being cruel and don’t intend to do so, so don’t take minor slights personally. My college pastor taught me this one.
Take some time each day to appreciate all that you have and what other people have done for you. I figured this one out in my early professional years.
You can feel an emotion inside of you without having to display it. I spent a few years reading a ton of philosophy and this was perhaps the most valuable thing I picked up.
Laugh at yourself. I’ve known this one since I was very, very young.
I could list quite a few of these, but they give you a clear idea of what I’m talking about.
Those are principles that I live by. I don’t just say them; I try to do them, to the best of my ability. The vast majority of the time, I succeed; if I fail, I try hard to figure out why.
As much as my life has changed over the years, most of these principles have stuck with me through those changes. I didn’t always have all of them – many were taught by my parents or by my earliest teachers, while others came from my mentors or from things that I read and learned – but once they stuck, they stuck.
The thing is, collectively, choosing to live by these principles has helped me handle almost everything that has come up in my life, from the biggest life-changing things to the little pleasures and annoyances. It’s not just about saying those principles, but how they guide you toward how you should act and how you should react to things.
To put it simply, when you stick to principles, you usually get through situations with a reasonably good outcome; it’s when you abandon them that things go haywire. This is really easy to illustrate with personal finance principles, so let’s walk through a few.
Principles In Practice
Spend less than you earn and do something financially sensible with the remainder. If you stick with that principle month in and month out, year in and year out, you’ll find that your financial problems melt away. Your debt disappears. You start saving for big goals in life, like retirement.
If you abandon that principle, even some of the time, a much worse outcome occurs. Sure, you get to splurge in some way in the short term, but the debt persists. You’re unable to actually build a stable financial foundation.
Unless there is a clear long term benefit to buying something, don’t immediately buy it – figure out another way to achieve whatever you want to be doing. My tactic for achieving this principle is to live by the thirty day rule – if I’m tempted to buy something nonessential, I wait for thirty days before doing so. If I still want it at that point, then I budget for it.
This goes down even to very little things, like buying a morning coffee at the coffee shop. I’ll do so if there’s a clear long term benefit, like if I’m meeting someone at the coffee shop to discuss a business relationship, but if that extra reason doesn’t exist, I look for a less expensive way to have that item or wait for at least a month. My long-term solution for a morning coffee is to simply make my own cold brew at home, which basically means I soak coffee grounds in cold water for 20 hours or so. It’s about as inexpensive as coffee can get and the resulting beverage is delicious. It’s literally my favorite way to enjoy coffee.
The funny thing is, if I didn’t follow this principle of trying to find a better and more cost-effective way of doing things, I likely would have never discovered my preferred way of making coffee. I would have stuck with “good enough” – overpriced coffee at the coffee shop. By trying to find something that had a better balance of “great coffee” and “low price,” I found a better solution both in terms of quality and money.
That phenomenon repeats itself over and over in all kinds of buying situations, and I would never discover those things if I didn’t stick to this principle.
If you must carry debt, make sure it’s low interest debt. The best route is not to carry debt at all, but if you must carry debt, try to make that interest as low as possible through debt consolidation or balance transfers.
The thing is, if you truly live by spending less than you earn, debt should eventually be a pretty rare thing in your life. You might end up with a small amount in an emergency situation, for instance, but that’s to alleviate a very short term problem.
The only time where this should be relevant is if you’re just starting to discover financial principles in your life and are just getting used to them. You’re probably holding debts from earlier poor choices, and thus if you apply this principle, you’ll know that you should do all you can to consolidate them down into lower interest debts when possible.
Having money in a savings account will help you in all kinds of emergencies. I implement this principle by automatically transferring a small amount each week from checking to an emergency savings account. I never turn off that transfer. That way, if an emergency occurs that would blow apart my budget – say, an appliance breaks, for example – then I know I can just tap that savings account.
Plus, I look at that account like this: if I’m truly spending less than I earn and am not accumulating debt and that account has a positive balance, then I know I’m spending less than I earn over the long haul.
An emergency fund bails you out time and time again. It keeps big unexpected expenses off of credit cards, where they are likely to start accumulating interest that you’re going to have to pay back. An emergency fund makes that a non-issue – you handle the emergency via credit card, then pay it off in full as soon as you’re able, or else transfer the money into checking and pay by check. No debt, no muss, no fuss.
These principles remain the same and continue to work even as my life changes.
Principles Stay True
Spend less than you earn and do something financially sensible with the remainder. Ten years ago, that “financially sensible” thing was paying off debt. At that time, our only real debt was a house mortgage, but we were committed to paying it off quickly using what remained after retirement contributions and building an emergency fund.
We spent less than we earned – a lot less – and because of that, we had the money to make double and triple mortgage payments and fund retirement and fund an emergency fund, all while only making roughly the average American household income.
Today, we still spend less than we earn, but the remainder is dumped into saving for retirement and also saving for an eventual land purchase in the country. The same exact principle still applies, though. We’re spending less than we earn and doing something financially sensible with the remainder.
What will we do in the future? We plan on sticking to this until we’re able to retire and live off of what we’ve saved, but even then, we’ll both probably still earn at least some income. I want to write a series of novels that I’ve been outlining and modifying for most of my adult life. I expect that we’ll still earn some income, but without the day to day pressure of deadlines, and that’ll still all add up to spending less than we earn.
Unless there is a clear long term benefit to buying something, don’t immediately buy it – figure out another way to achieve whatever you want to be doing. Ten years ago, our action on this principle involved figuring out how to take care of infants and toddlers without breaking the bank. We were figuring out how much more cost effective cloth diapering was rather than buying acres of disposables, for example, and how much value one can get out of a good breast pump.
Today, one of our big foci is on the long term value of education. What extracurriculars are our children getting a lot of value out of? What about educational opportunities for myself and Sarah? What actually provides value? We’ve learned that too many extracurriculars have a diminishing return in terms of actually building character and excellence, but having none isn’t good either – a balance of a quality activity or two and unstructured free time to explore interests seems to be the right balance for growth and for finances.
Ten years ago, we were learning the value of preparing meals at home. This year, I used this principle to find a better way of making good low-cost coffee. Ten years ago, I used this principle to start figuring out how to save a ton of money on laundry by making my own laundry soap. This year, we dug deep into make-ahead meals, putting tons of them in the freezer instead of buying ready-made ones or buying takeout.
Over and over again, this principle comes through for us. What is the clear long term benefit of this purchase over a lower-cost alternative? We’ve asked that of our purchases for a very long time, and we keep asking it, because sometimes even better answers reveal themselves.
If you must carry debt, make sure it’s low interest debt. Back then, our goal was to eliminate our remaining debt. We spent much of 2006 and 2007 paying down debt, setting ourselves up to buy a home, and then hammering at that mortgage debt.
Today, our goal is to avoid debt. We’ve considered many of the big expenses that we have coming up – replacing one car, then replacing the other a year or two later – and already have saved for those costs.
If we have to carry debt for some reason, a low interest car loan is preferable to high interest credit card debt, so if we absolutely had to, we could tap our car savings if the other option was to throw things on a credit card. We’d rather avoid both.
Having money in a savings account will help you in all kinds of emergencies. Ten years ago, I added to our emergency fund manually and, over and over again, I found that we were happy to have that money. We had a major unexpected trip for a funeral. We had several unplanned expenses for our house. Our emergency fund handled all of those things.
Now? We have a very healthy emergency fund that’s funded automatically with a small checking account transfer each week. We have had a couple of emergencies in 2017 that were big enough to tap it, but nothing that really drained the account in any significant way.
Still, simply having that emergency fund is a huge relief. It reflects the fact that a pretty stiff crisis can hit our life and we can roll right through it without skipping a beat. This principle saves us cash, but it also saves us some significant headaches and some stress along the way, too.
Finding Your Principles
In this article, I’ve mostly hammered home how a handful of key financial principles go a long way toward governing a lot of our financial decisions, from what we buy to how we invest. Even as the tides of life change, we continue to live by those core principles and they continue to guide us in the right direction.
They’ve worked through the arrival of children. They’ve worked through life-altering illnesses. They’ve worked through career changes. They’ve worked through personal crises. They worked when I was a young adult, and they work as I approach middle age.
Why? When principles really make sense, when they make objective sense and align with your values, they work in lots and lots of settings and situations. You can rely on them to guide you through whatever you might be facing in the moment.
How do you find these principles? Honestly, it takes a while, but here’s what I’ve found to be true.
First, focus on things you care about that you aren’t sure that you’re handling well. Money, obviously, is one, but so are social situations, your career, your social network, and so on.
Second, think about the outcomes of those situations that would make everyone involved happy, not just you. It’s easiest to visualize a great outcome for yourself, but the true best outcomes are the ones where everyone involved sees a nice net benefit. Think of a good friendship – it doesn’t just run one way.
Third, look for trusted advice on how to get to those awesome outcomes. How do you build a good social network? How do you build financial independence? What exactly do you do? Seek out trusted advice on the process involved, either from people in your life that you trust or other resources that have built your trust over time. Seek out their key steps for getting to that desired outcome.
Fourth, adopt the things that all of those pieces of advice have in common that also feel right to you. A truly good piece of advice feels right because it resonates with your internal values. A piece of advice that both feels right and is agreed upon as a step to getting the great outcomes you want is probably going to become a principle.
Finally, apply that nascent principle over and over until it feels natural and you really understand it. For a while, you’ll probably have to remind yourself of this principle. One good way to do that is to keep the principles you’re working on front and center in your mind as you’re building them. Make it the lock screen on your phone or the home page on your browser. Put it on a Post-It note on your rear view mirror. Make it a four times daily reminder on your phone. Keep thinking about it and applying it and thinking about it more and applying it more until it starts to feel completely natural. That usually takes a while – three or four months – but when it does feel natural and you do it without even thinking about it, that’s when you’re living by principles. Then, repeat the process with new principles.
Discovering good principles is easy. Ingraining them into your heart and into your behavior is hard. It takes time. However, when you do finally build them and you do live by them, it makes life so much easier and so much better. Your natural course of action not only lifts you up, it lifts everyone around you. Not only that, you feel prepared to handle almost anything life hands to you. That’s a great place to be in.
Your homework? Pick a part of your life that you really want to improve. Imagine the kinds of outcomes you want in that part of your life, ones where everyone involved wins. Figure out how to get from the way you do things now to a state where those outcomes happen often – figure it out by talking to mentors and reading good advice. Figure out the one or two or three key principles that pop up again and again and just feel right. Practice those principles and keep them front and center in your mind until living by that principle feels natural. Doing so gives you a bedrock to live by, making things like being financially responsible feel like a completely natural behavior.