There's been an influx of new readers at Get Rich Slowly lately. To serve as an intro the new folks (and to celebrate the site's fourth anniversary, and in honor of Financial Literacy Month), today I'm going to review my financial philosophy. Although we covered each of these points in turn last autumn, it's been a while since I collected these core values in one location.
Based on my research — and my experience with what does and doesn't work — I've compiled a list of fourteen guidelines that form the basis of everything I write. Some of these tenets draw on age-old wisdom: “Saving must be a priority” is just the ancient truth that you've got to “pay yourself first”, for example. But other rules — such as “do what works for you” — I came up with based on my own struggles.
Here, then, are the fourteen tenets of the Get Rich Slowly philosophy:
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- Money is more about mind than it is about math. That is, financial success is more about mastering the mental game of money than about understanding the numbers. The math of personal finance is simple — spend less than you earn — it's controlling your habits and emotions that's difficult.
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- The road to wealth is paved with goals. Without financial goals, you have no direction. If you have no direction, it's easy to spend money on things you'll regret later. But if you're saving for a house, your daughter's college education, or a trip to Europe, your goal will keep you focused, making it easier to spend on what's important and ignore the things that aren't.
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- To build wealth, you must spend less than you earn. Basic math, yes, but it's important. Successful personal finance is all about building positive cash flow. By decreasing your spending while increasing your income, you can get out of debt and build wealth.
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- Saving must be a priority. Before you pay your bills, before you buy groceries, before you do anything else, you should set aside some part of your income. If you have to start small, start small. Even $25 a month is good. As you earn more and develop better habits, save as much as possible. (My wife saves nearly a third of her paycheck!)
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- Small amounts matter. Your everyday habits have a huge impact on your financial success. Frugality and thrift help build good habits, and make a real difference over time. Plus, there are tons of opportunities to flex your frugal muscles.
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- Large amounts matter, too. It's good to clip coupons and to save money on groceries, but it's even better to save on the big stuff like buying a car or a house. By making smart choices on big-ticket items, you can save thousands of dollars at once.
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- Slow and steady wins the race. The most successful folks are those who work longest and hardest at things they love to do. So try to find ways to make frugality fun, and recognize that you're in this for the long haul. You're making a lifestyle change, not looking for a quick fix.
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- The perfect is the enemy of the good. Too many people never get started putting their finances in order because they don't know that the “best” first step is. Don't worry about getting things exactly right — just choose a good option and do something to get started.
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- Failure is okay. Everyone makes mistakes — even billionaires like Warren Buffett. Don't let one slip-up drag you down. One key difference between those who succeed and those who don't is the ability to recover from a setback and keep marching toward a goal. Use failures to learn what not to do next time.
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- Do what works for you. Each of us is different. We have different goals, personalities, and experiences. We each need to find the tools and techniques that are effective for our own situations. There's no one right way to save, invest, pay off debt, or buy a house — and don't believe anyone who tells you there is. Experiment until you find methods that are effective for you.
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- Financial balance lets you enjoy tomorrow and today. Being smart with money isn't about giving up your plasma TV or your daily latte. It's about setting priorities and managing expectations, about choosing to spend only on the things that matter to you, while cutting costs on the things that don't.
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- Action beats inaction. It's easy to put things off, but the sooner you start moving toward your goals, the easier they'll be to reach. It's better to start with small steps today than to wait for that someday when you'll be able to make great strides. Get moving.
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- Nobody cares more about your money than you do. The advice that others give you is almost always in their best interest, which may or may not be the same as your best interest. Don't do what others tell you just because they hold a position of authority or seem to have a persuasive argument. Do your own research, get advice from a variety of sources, and in the end, make your own decisions based on your own goals and values.
- It's more important to be happy than it is to be rich. Don't be obsessed with money — it won't buy you happiness. Sure, money will give you more options in life, but true wealth is about something more. True wealth is about relationships, good health, and ongoing self-improvement.
The most important of these tenets — and this site's motto — used to be “do what works for you”. But as I wrote Your Money: The Missing Manual, I realized the book's theme was “nobody cares more about your money than you do”. And that's the actual core value here at Get Rich Slowly. My philosophy — on this site and in my book — is all about taking an active role in your financial future, about becoming your own financial guru.
I talk a lot about my financial philosophy, but don't know if I've ever asked about your financial philosophies. So, tell me: What money rules do you live by? What are the fundamental tenets of your fiscal life?
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.
Spend money on experiences, not stuff.
On personal finance in general: “Grow your cash flow.”
On investing: “Diversify. Minimize costs. Ignore the noise.”
Just out of curiosity, how do you know that there is an influx of new visitors? Is it based on the comments posted, the number of people visiting the site, spyware installed on our computers? Just kidding on the last one…maybe ;-)
Learn how to invest as soon as you can. This isn’t just about avoiding paying professionals big bucks (we’re not talking about changing your own oil here!), it’s also about making sure you know about starting early and about how to allocate assets. If nothing else take the night investment course at your local community college.
For us it would boil down living on purpose.
Knowing where our money is going.
Knowing exactly what we’re purchasing.
Knowing what we’re purging to make room for the new purchase.
Being intentional with our money and the things in our lives.
Declutter your life. Get rid of the unnecessary stuff and focus only on things that matter to you. Be frugal, but don’t be afraid of spending money on things that you really want.
These core values and articles you write bring tremendous value. I actually wrote them down on a piece of paper to have them at hand when I work on my finances.
Valuations matter!
Rob
@Rob (#7)
I smiled when I saw your rule. I could have guessed that one from you! :)
I’m with Jessica #5.
I often remind myself, ‘I don’t know what I don’t know’ so I ask lots of questions and I’m not afraid to look stupid.
I completely agree with you about #1. I wrote a post saying the same thing because I found that when I changed my mindset about money I was able to make greater strides, even without getting a pay increase.
It is hard to get over that mental block at first when you have lots of debt and only a small income as it feels like the bills just keep piling up and you are getting nowhere.
Making a budget really helped and even though I had to shuffle money within the budget I found that the more I stuck to it the easier it became.
Your example of Warren Buffett in #9 reminds me of the Black Monday market slump in 1987. At the time I worked with Jim, a man who dabbled in the stock market as a hobby. Jim lost a couple thousand dollars in the slump, but he laughed about it because one of our local billionaires, Les Wexner of Limited Brands, had lost over a billion. Jim claimed that made him a better investor than Wexner.
The most valuable asset is time!!
I like your theme, and it’s a good starting point.
Personally, I’d have to say something like, “Knowledge is power, and power is money.”
I feel this encompasses everything. From one direction, knowledge helps make me richer through sound investments and personal income. On the other hand, knowledge keeps me grounded and helps me live a simple life without all the (expensive) clutter.
My money rule:
“Use it up, wear it out, make it do or do without.”
That, and make sure I stay in good standing in my well paying job.
-Katy Wolk-Stanley
P.S. Looking forward to hearing your talk tonight!
I agree with Oskar!!
I’ll elaborate on #1 Chett’s tennant. I usually put it:
“Experiences are better than ownership.”
Anyone who has ever collected anything knows that searching for the pieces to your collection and remembering “the hunt” is always better than having and looking at the collection in your house. That’s why often times the coolest part of a visit to a museum is the story behind the artwork or artifact.
Hello,
I’d be one of those new readers you’re talking about. I started reading your blog about two months ago or so. I have a question, though:
Currently, I’m a junior in college. So far, I’ve made good money decisions. I pay my credit cards off every statement (as they come in, no less!), soI have no debt (other than student loans). However, I feel that after I enter the “real world” next May I won’t have a good financial grounding. My parents didn’t really teach me that much about how to manage my money (past the basics – how to balance a checkbook, etc). I’m lost if you mention bonds, IRAs, etc.
So, my question to you is this: as a soon-to-be college graduate, what should I know, and what kinds of investments should I make?
I know you talk about having goals in the list, but I believe you need some very specific goals that are a direct part of your personal list.
Great post, we should know how to use our money, it is a tool that so many of us do not know how to handle or work with it.
Making memories as someone else commented is a great one to strive for.
Thanks.
My rule is:
“If I don’t love it, I don’t buy it”
Don’t just buy things that are good deals. However if you love something, I have found that it is usally worth the money in the long run. Example; good running shoes. Sure I could buy cheap ones, but I would rather buy the ones that I like wearing, are better for my feet, and cost more. Basically value is not cost.
Hello GRS,
I agree with each of JD’s tenets, but the Rule that has had the most impact in my life is:
Action beats inaction!
I am a relatively young professional with a modest income and I graduated from college thinking I would make a huge salary immediately and pay off my debt in short order. That has not been the case. But over the last three years I have been diligent about paying off the credit card debt I accrued in college and it feels great! I still have sizeable student loan debt, but reaching small goals has done wonders for my confidence and hope that one day I will be debt free.
Working on ‘if you can’t afford it, don’t buy it’ :P
Amen to #1.
My money philosophy: Live within my means, BUT ALSO make my means fit my expectations.
This has liberated me to actively pursue making more money.
Someone said, “Living on purpose”. This is great. For me it says, my life is up to me. I choose my job, my relationship, the actions I take; if something’s not working, it’s up to me to do something about it. This is completely true with finances: whether my debt is growing or my savings, it’s up to me to take the actions that get me going in the direction I want.
I like to reread the 14 tenets from time to time. They are a great reminder.
@Alex #17: Check out JD’s many links on Roth IRAs. Both the articles and the comments are fantastic sources of info, and they are what got me started investing knowledgably. (is that a word??)
I love and agree with all of them!
The most important rule for us is “Time equals wealth”.
Freedom is what is most important to me and sharing my time on this planet with people I love.
You don’t have to be rich to live richly & I think our open ended world travel lifestyle on 23 dollars a day proves that.
We could never be living this life if we hadn’t used many of these same principals.
Thrilled to hear that your book is doing so well! Hope your philosophy spreads to many!
Here are some of mine:
* Don’t buy stuff I don’t care about so I’ll have more money for the stuff I do care about.
* Keep my eyes open for options and be creative to find better ways to achieve my goals. For example, once I tried used clothing from thrift stores and used cars, I decided I’m never going back. It’s hard to learn about all the different ways there are to achieve various goals. Google is my friend!
* Doing things yourself gives you more control. This is great for things you can learn to do and that you care about or are picky about. (I make food with more fiber and fewer calories than store-bought, jewelry with prettier color combinations, investments with low costs, etc.)
* Be prepared — I learned this in Scouts and it applies in finances. I save ahead of time for annual and other large expenses. I research things I want whenever I’m in the mood, even if I won’t have the money for a while–by the time I have the money, I might not have the time or inclination to do the research.
* Patience — Not being on the cutting edge for new products lets me learn the easy what’s good and what isn’t and the price comes down while I’m waiting. One exception: new financial things. (When I-bonds first came out, they paid a lot better than they do now; when online savings accounts were first created they paid a lot more than they do now–I think new financial instruments have to pay more to get people’s attention; then they start paying less.)
* Diversify — not just investments, but everything. It’s good to have more than one hobby, more than one skill, more than one friend (see the movie “About a Boy”), more than one way to get to work, etc.
* Track data — If my budget starts going wonky and I can’t figure out why, I start tracking my spending. If I buy something new, I write when and where I bought it and for how much. If I eat out, I record what I tried, whether I liked it, and how much it cost. Tracking the data is annoying, but it’s shocking how often I’m really glad to have it. Like when my friend liked my purse, I had forgotten where I had gotten it, but it was written down and now she has that purse. And now that I’ve learned that I like the tater tots at Sonic better than the fries, I’ll always be getting the yummier thing.
* Live for today AND prepare for the future. I save a lot for early retirement, but I also travel every year, take fun classes, eat out, go dancing, etc.
* Get rid of stuff I’m no longer using because I really, really like space. This is a new one for me–I’m now good at not adding to the problem, but still working on reducing the back up.
@Alex #17 — check out good financial books like Personal Finance for Dummies, Your Money or Your Life, and (I assume) J.D. Roth’s Money: the Missing Manual. Also, talk to people who are good with these things (or might be) such as friends with knowledgeable parents, your other relatives, etc.
For investments, start right away with something relatively safe. If your company has a 401K, pick an offering that is a money market fund or a diversified stock/bond fund. When in doubt, pick something with very low fees. You may try investing small amounts of money directly in stocks with a discount broker or play a stock investment game. As you read more, you may change your philosophy and make adjustments–that’s good. You’ll make mistakes (such as regarding how much risk you can handle), but the sooner you get started, the sooner you learn your lessons and the more likely you’ll learn the lessons with relatively small amounts of money.
Moderation in all things, including moderation.
Don’t go into debt for a depreciating asset.
Take care of the important basics before spending on luxuries. After that, if you can afford a luxury, it’s ok to spend on it. (But no need to look for places to spend money unless doing that makes you happy.)
Saved/invested money makes money for you.
Understand sunk costs.
Invest in the future.
Pay your dues early and you’ll have a lot more freedom later. It’s easier to increase spending later because you can than to decrease it because you have to.
Most of these I got from this site!
You can have anything you want, but you can’t have everything you want.
Reduce your exposure to advertising and you’ll be amazed at how your list of “needs” gets smaller.
If it’s broken, ask yourself if it’s something you really need. If yes, can you fix it? If not, can you buy it used? If not, then find the best deal possible.
Get rid of stuff. Focus on experiences, not objects.
Plan ahead.
Decide what’s important to you and allow yourself to spend on it and enjoy it.
Remember that no matter how much you save or do it “right,” you never know what life has in store; don’t get so wrapped up in planning for the future that you can’t appreciate the present, with all its (and your) flaws.
After recently finishing graduate school, I have just started my first job that provides a retirement savings plan (403b). I am at the point in my life where I want to start saving for a house and kids but I am a bit lost as to how to allocate my cash and retirement savings. How much would you recommend directing to savings and how much towards retirement?
I don’t have a money rule per se. Just wanted to let you know that I just got your book in the mail – it is for a wedding present for my mother. It is so well organized and I can’t wait to finish reading it. (Yes I read a book before I gift it – I am one of those).
^Carmen, me too. After all, you wouldn’t want to give someone a book if you weren’t sure it was any good, right?
Some great comments here. My money rules are not at all unique except maybe these two:
Spend now to avoid spending later;
and
Use it or lose it.
This is my favorite personal finance site. I visit everyday and have learned so much from here, and I try to pass along much of this information. It truly has changed my outlook on money.
My favorite philosophy is the first one, because it is so true. Thinking about your money is the first step, before doing any actions. This is the reason why I have more money saved up than my friends who make twice as much and I’m less stressed.
One of my favorite articles is “Learning to use money as a tool” which was enlightening for me. Sometimes you cant worry about the cost of things, because your money buys more than just an item. It buys less stress, buys time, etc. This type of value should be factored into any purchase.
I’m very glad I found this site though, it’s been great for me.
Your #1: “Money is more about mind than it is about money.”
…therefore, to think well is to live well.
Your #2: “It is more important to be happy than it is to be rich.”
I would replace “happy” with “content” and add that “to be content is to be rich.”
…therefore, neither “happy” nor “rich” are direct functions of money.
Your most valuable asset is you. Invest in yourself first. Deepen your knowledge on financial literacy.
When you do invest in something, invest in something you have a passion for, not because an expert advised you to do it.
It’s about the investor, not the investment.
1)Comparative judgment is not a fruitful exercise; the only relevant measure of success is your own
2)Reclaim your income from all debt (good vs. bad debt is a warrantless distinction except for prioritizing repayment plans)
3)Save for Vacations
4)Have Targeted Savings Accounts for Long Term or Reoccurring Expenses (Auto Insurance Premium, House Down payment, etc.)
5)Start Christmas Shopping early to avoid being overwhelmed in December
6)Attaining and sustaining wealth is not a function of your income
7) Small Incremental Steps should not be dismissed, they put you on the road to big beginnings
8) The plan should be to become your own expert instead of sheepishly soliciting advice or following it
oops – almost forgot – keep learning about personal finance by exposing yourself to different sources, books, blogs, etc. – it’s no excuse to have money blunders because your immediate social circle did not teach you.
JD
Very well written and very well compiled list.
As I have been slowly recognizing the obvious, it is #1 on your list – mastering the mental game – controlling habits, emotions and one’s behavior. Without this in place, all the others in the list wont work.
@ Brian C #16
Phaedrus said, in Zen and the Art of Motorcycle Maintenance, “Sometimes it is better to travel than to arrive.” I think J.D.s follow up post today proves that point.
#6 (Large amounts matter, too) has really hit me in the last year. I still kick myself for not consistently investing in mutual funds over the last 20 years; Day trading and losing my IRA; Not being wiser in looking for a good buy when purchasing a house. Each of these mistakes probably cost me $100,000+….
Time is more valuable than money.
Make your money work for you.
I think for me it would be “Action beats Inaction”.
Once I finally got started saving, and got started paying attention to what I spent, and got started with all the other things, I got motivated by it and have continually pushed myself to do more. Because once I put action in place, I found out I had more ‘spare’ money that I ever realized and that investing it and savings it really isn’t as hard as it seemed! :)
I love your philosophy. On point I would like to add how you invest can be as important as how much you invest.
Some of my catchphrases and watchwords:
“You can’t cheat an honest man.” I don’t buy off the back of trucks and I don’t play the lottery because I know that spending less than you earn *is* winning a lottery.
“Frugality is a purchase just like food or utilities.” Let’s say my budget has $30 for eating out in a week, and it’s the end of the week. I will say to myself, “Well, I’ll eat at the diner and only spend $15, and spend the other $15 on budget relief,” meaning on moving that month’s bottom line up $15. It’s a great way to get the “shopper’s high” without actually spending.
Easy:
“Pay yourself first”
and
“Live WELL within your means!”
… purposefully ambiguous
“It’s better to start with small steps today than to wait for that someday when you’ll be able to make great strides.”
This is so true, because great-stride-someday will never occur.