10 Golden Rules of Personal Finance Everyone Should Know

We live in a world where information overload is part of daily life. But when it comes to personal financial information, maybe simpler is better. Embrace a moment of Zen. Tap into the simple truths that have served you well and the truths you can teach others. Here are the 10 golden rules of personal finance everyone should know.

1. Have a Goal

Without a clear set of goals, it's difficult to know what personal financial success looks like. Define your goals and then create a realistic step-by-step plan that moves you forward.

2. Distinguish Wants From Needs

Confusing wants with needs keeps people in a constant state of financial unrest. Understand that human needs are fairly simple — food, clothing, shelter, health care, reliable transportation, etc. Broadly speaking, everything else is a want. That doesn't mean we shouldn't indulge in wants from time-to-time (life would be bleak if we couldn't). It simply means we should choose our wants consciously and not let their constant pursuit jeopardize our financial security.

3. Live Within Your Means

Developing a solid budget and living within your means (that is, not spending more than you make) frees you from the maddening loop of working, overspending, servicing debt, and working some more. Learning to live within your means is an achievement in itself, but living below your means is even better. Spending less than you make leaves you with a surplus — the vital capital that funds your future.

4. Start Saving Early

When it comes to saving, time can be your best friend. Start saving in your early 20s and you'll not only have more time to accumulate significant wealth (even on a modest salary), but you'll have more time for compounding interest to work its magic.

5. Pay Yourself First

There are a lot of reasons to pay yourself first. Perhaps most importantly, it removes the element of choice — even if only artificially — from the act of saving. Setting aside money in a savings account, IRA, or 401K plan via automatic payroll deductions helps reduce the temptation to spend first and save later.

6. Know the Difference Between Assets and Liabilities

Here's the easy-peasy definition: Assets are things you own that have value. Your car, home, savings account, and coin collection are all assets. Liabilities are what you owe. Credit card balances, student loans, and car notes are all liabilities. The not-so-secret secret to success is to accumulate assets and reduce liabilities.

7. Avoid Consumer Debt

Don't let savvy credit card marketers confuse you: Your credit limit is not your spending limit. Avoid consumer debt and the nearly usurious interest rates that go along with it. The slow bleed of interest payments, late fees, and other charges will kill your budget and your prospects of achieving personal financial security.

8. Pay Debts With the Highest Interest Rate First

If you're unable to avoid consumer debt, be strategic in the way you pay it off. Knocking out high-interest balances first exposes you to less interest charges over time. (See also: 5 Ways to Pay Off High Interest Credit Card Debt)

9. Don't Invest in Anything You Don't Understand

Investment success takes clear thinking, discipline, and consistency over time. Taking shortcuts and investing in overly complex products you don't understand threatens your long-term gains and capital. Stick with what you know, strive to learn more every day, and don't be spooked by cyclical fluctuations in the market.

10. Prepare for the Unexpected

Sock away six to eight months' worth of net income in an emergency fund. It's a simple, but effective way to weather a job loss, unexpected health issue, surprise household expense, and other life events that could threaten your family's nest egg.

Oh, and at the risk of wrapping things up on a melancholy note, remember that preparing for the unexpected also includes proper estate planning. Protecting your assets and providing for your loved ones is an often ignored golden rule of smart personal finance. If you haven't made a will yet, add it to your to-do list and to-do it!

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