My 10 Rules of Money

Tommy

Just a Millennial living in the real world...

Being an only child was great as I was the star of the show and I didn’t have to share with anyone. But having older siblings to learn from, hang out with, or talk to would have been nice as well. Everything I have learned while growing up has been by learning from my parents, learning by trial and error, learning from education, learning from reading books, and learning by using Google.

It hasn’t been easy for us Millennials, but we are one of the most educated generations and we have a vast amount of information at our fingertips thanks to the internet. I’m not a perfect person and I make mistakes occasionally. But I try to limit my mistakes and learn from them as well.

Being financially savvy is one of the best skills you can learn as the world pretty much revolves around money. The earlier you learn those skills, then the faster you can apply those skills to your benefit. Here are 10 financial rules that I live by and I wanted to share with you. Following them could lead you towards a better financial life and help you out in the future.

Rule #1: Don't spend more than you make.

This is literally a no brainer. You shouldn’t spend more money than make or you will run out of money, take on debt, which can lead to a bad time. A lot of people have spending problems, including myself. I can’t tell you how many times where I have wasted money on things that I don’t need or things that I don’t fully utilize and they collect dust. You don’t need the most expensive brands and you don’t need to keep up with the Joneses to be cool. Every person can choose to spend their money on how they please, but it is wise to not spend more than you make. Living below your means will go a long way.

Rule #2: Invest in yourself.

Your most important financial asset is not your home, savings account, or IRA. It’s you! You make your own decisions in life and you have to live with the consequences of those decisions. You choose what you want to eat, what you want to buy, or what you want to do in life.

One of your first major life decisions is to determine what you will do after high school. Do you want to go to college, take time off, or go to work? The choice that you make is the start of your journey of becoming an adult. I chose to go to Purdue University because I knew they would give me a good education, they were close to home, and I felt like they fitted my needs. Higher education is an investment in yourself as it gives you the knowledge about your field of study.

The Covid-19 pandemic has given us time to socially distance and stay at home. What have you done during these times? I’ve launched this blog, learned how to improve my golf game, improved my cocktail making skills, learned about racial injustices in the U.S., and taught myself yoga. There are plenty of things to do to learn new things like watch YouTube, read books, or buy a masterclass.

In order to be successful, you have to invest in yourself.

Rule #3: Buy Disability Insurance.

Buying disability insurance is often overlooked because a lot of people think they are invincible or something bad will never happen to them. I’ll re-instate that your most important financial asset is yourself. What happens if you can’t go back to work for a year if you are in a car accident? How do you support your family if you become disabled and you don’t have enough savings? These are tough things to think about, but that is why you buy disability insurance. So you don’t have to think about those things if an accident occurs.

Disability insurance will typically cover 60-80% of your income in the event, God forbid, you become disabled and you cannot perform your daily work functions. It’s pretty cheap when you are younger and it gets more expensive when you become older because of higher risk. Life is short and we should cherish every moment we have. Unfortunately, we can’t predict the future. So make sure that you protect yourself in case anything bad happens to you.

Rule #4: Start investing early.

I still find it mind-boggling that only about half of Americans have investments in the stock market. As Millennials, we have 20-30 years until we are likely to retire. That is quite a long time and we should be using the power of compound interest.

Even with the Great Depression, the Great Recession, and now the Covid-19 Pandemic, we have seen that the stock market continues to go up. Yes, there is a lot of risk as you can lose a lot of money. But it’s about educating yourself and being smart with your money.

For example, during the March/April 2020 my Roth 401(k) nosedived by about 25% like a lot of people’s accounts did. I could have panicked and sold my investments and taken that 25% loss at that time. But knowing that I am planning to retire around age 65, my investment strategy is to buy and hold and continue to invest for the long run. Now in June, my Roth 401(k) is now up 5% because I decided not to sell.

A 5% rate of return is a lot better than the 0.02% rate of return you have in a savings account. So make sure you start investing early!

Rule #5: Diversify your assets.

I’ve said this before in my Investing in a Bear Market post, but it’s very important to diversify your assets so you don’t lose all of your money with one investment. It’s good to have a mix between stocks, bonds, mutual funds, ETFs, real estate, and cash. What happens when you invest in only one company and it goes bankrupt? Well you lose all of your money…

I am a big believer in investing into mutual funds and ETFs because they are diversified assets. Their investment portfolios are compiled of many different companies in different industries so you don’t own just one stock. Don’t put all of your money in one basket and diversify your assets.

Rule #6: Find value.

Everyone loves saving money or getting a good deal. What I mean by finding value is to make sure you don’t overpay for things like a house or a car. It’s best to shop around to find the best deal so you don’t have to stretch your budget to above your means.

Someday I would really like to buy a home and call it my own. But the real estate market in Chicago is so overpriced and expensive that it’s hard to afford a place of my own that suits my wants and needs. So I am choosing to rent and save money in a cheaper neighborhood until I find a good deal on a house.

Rule #7: Automate your savings.

The easiest way to save money is when you don’t even have the opportunity to spend it. It’s best to automate your savings to set up where every time your paycheck comes in, you set aside a certain percentage of your paycheck for savings. You should be saving for at least 3 months worth of income as an emergency fund and also retirement savings. Other savings goals could be saving for a vacation, for a down payment on a home, or for a child’s education.

Rule #8: Track your spending.

It’s important to know exactly where your money is going so you can create better spending habits. I use an excel spreadsheet to “balance my checkbook” and I plug in my actual spending weekly. At the end of the year, I create a year-end summary showing me where my money is going. Updating my excel spreadsheet weekly helps me plan future spending and it helps me stick within my budget.

Rule #9: Surround yourself with people smarter than you.

There are a lot of things that I don’t know about in this world. I love learning new things, but I am not an expert in everything. That’s why it’s important to surround yourself with people smarter than you. Surround yourself with people who work in different industries and you can ask about their profession to learn about those industries. If you do this, then you have the opportunity to learn new things from them.

Rule #10: Have fun!

I mentioned this in another post, but you should spend your money how you want and you should have fun! Take that vacation that you’ve been putting off for years, buy a course to learn a new skill, or buy something that will give you happiness. Self-care is important and should be something you strive for. Having fun will also boost your self-esteem and mental health. Make sure you don’t go overboard, but make sure you make a line item in your budget for having fun!

Featured Image: Photo by Alexander Mils from Pexels