The Golden Rule of Personal Finance
Posted on August 18, 2007
Personal finance can be overwhelming and confusing. With all the pitfalls and intricacies along the way it takes time, experience, and education to understand it all. But to simplify the point of everything this personal finance blog has written and condense it into one sentence it would be as follows: The simplest way to live comfortably and remain debt free is to spend less than you earn. Notice I did not say it was the easiest. It takes discipline. However, without understanding this basic principle, debt will always have a constant role.
I know there have been times in my life when I felt like I had more income than I actually did. In the late 90s with the stock market rising to all time highs and sustaining double digit gains, on paper it appeared like I had amassed a comfortable amount of money for a 20 year old. Cashing out only a portion of that money it was obvious later on when the market tanked that I did not have as much as I had thought. And like many others it was much easier to spend when I came home at night and saw my stocks had another record day and my investment account was increasing daily. Again in 2003-2004 when the housing market was going through the roof, I still had not fully understood the concept. Buying in a desirable market at that time everyone made some money. It was impossible not to. However, again the housing returns where temporary and not sustainable, and only on paper. But coming home at night and reading how much I had gained in my house gave me a false sense of how much money I really had.
With those lessons learned I think I finally understand that unless the money is in the bank, it’s not mine. With that said monitoring my monthly spending makes it much easier to understand where I stand and how much I really have, both on paper and in the bank.
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