Essential Rules of Personal Finance for Financial Stability and Prosperity

In the often confusing landscape of personal finance, navigating the many decisions and choices can feel overwhelming. Yet, amidst the complexity, there exist a few steadfast principles — rules of personal finance that serve as guiding lights through the ever-changing currents of economic uncertainty.

Below are 32 mostly unbreakable rules of personal finance, a comprehensive guide distilled from decades of financial wisdom and the practical insights of financial planning enthusiasts. These rules offer a roadmap to financial stability, security, resilience, and prosperity.

1. Pay off credit cards every month: Paying off credit cards is fundamental to healthy financials. Credit card debt typically carries high-interest rates, which can quickly accumulate and become unmanageable if left unpaid. By paying off credit cards every month, you avoid accruing interest charges and unnecessary fees, saving money in the long run. Moreover, consistently paying off the credit card promotes responsible spending habits and prevents the accumulation of debt beyond one’s means. Bonus: It also helps you build and maintain a positive credit history, which is essential for accessing favorable loan terms and other financial opportunities in the future.

2. Borrow minimally: By adopting a policy of minimal borrowing, you can maintain better control over your finances and avoid the stress and burden of debt repayment. Exceptions like borrowing for a home (and in some cases education or a car) are often made when borrowing helps you build wealth. Most notably, real estate purchases typically involve large sums of money that many people cannot afford to pay in cash. Mortgages are considered “good” debt because they are usually lower in interest compared to other forms of debt and can potentially appreciate over time. By limiting borrowing to essential needs like homeownership, you can reduce the risk of financial strain and focus on building wealth through saving and investing. This approach promotes financial independence, stability, and peace of mind.

3. Use other people’s money wisely: “Always use someone else’s money” is a principle often cited in the context of business or investment strategy. It refers to leveraging other people’s resources, such as loans, investments, or partnerships, to finance ventures or projects instead of relying solely on one’s own capital. In personal finance, the most common example of using someone else’s money is using a mortgage to buy a home. By using other people’s money, you can amplify your financial capacity and potentially achieve greater returns or growth than you could with your own resources alone. However, it’s important to note that while leveraging other people’s money can offer advantages in terms of financial leverage and scalability, it also entails risks, such as debt obligations, equity dilution, or conflicts of interest. Therefore, prudent financial management and risk assessment are essential when applying this principle in practice.

4. Spend within your means: Spending within your means is the foundation of getting ahead. By living below your means, you can save, invest, and achieve other financial goals, ultimately paving the way for financial freedom and security in the long run. Overall, spending within your means is essential for achieving financial stability, reducing financial stress, and building a strong financial future.

Contrary to what most financial writers think, many people reading financial content actually over-save, over-plan, have overly conservative assumptions in their plans, and live very frugally. To these people, it’s important to remember that personal finance is about finding a balance between saving for the future and enjoying the present. Larry recommended, “Quit overthinking and live a little!” And Michelle commented that she is really trying to “learn to get the water view, but without sacrificing financial security.”

In conclusion, these 32 mostly unbreakable rules of personal finance provide a solid foundation for navigating the complexities of personal finance. By following these principles, you can make informed decisions, build financial resilience, and create a secure and prosperous future. Remember, personal finance is a lifelong journey, and these rules will serve as your trusted guide along the way.