• Harry N. Stout

The Ten Basic Rules of Personal Finance


Here are the ten basic rules of personal finance. Following these rules will enable you to have a successful journey through the FinancialVerse. Taking time to reflect on each principle and how to integrate it into your own life will boost your financial literacy and lead to more educated, informed decisions.

  1. Spend two hours per week understanding and keeping up to date with the FinancialVerse. This means you will need to read, listen to, or watch media to understand current leading financial indicators, economic developments, key financial terms and concepts and basic financial math. Much will change as new technologies are introduced and implemented. You need to keep informed of these changes.

  2. Have a budget or ongoing record of cash coming in and going out. I learned early in my career that what is not measured is not managed. You can’t navigate your journey if you don’t know how you are doing and where you are going. In the FinancialVerse, this is done by understanding and managing your inflow and outflow of cash. Think of yourself as a plumber. You want to make sure your water pipe is flowing cash efficiently and lacks any holes that could be leaking funds.

  3. Using crowdfunding sources such as GoFundMe to raise emergency cash is not a reliable financial backup strategy. I can’t stress this enough in what I see each day. Recently, I knew of the death of a man in his twenties in a car accident. His obituary showed the link where contributions could be made to take care of his family and funeral costs. You must become financially self-reliant. You must protect your income, assets and family. You cannot depend on the kindness of others to bail you out of difficult circumstances. These people may not be there when you need them, and your dependents may suffer as a result.

  4. Understand the new ways to acquire and pay for things you need to live in our economy today. There are five major ways to get the use of things you need—buy them for your exclusive use, rent them for your exclusive use, barter for them, subscribe to use them sharing with others for a fee orlastly, getting them for free in exchange for your personal data or service (think Google and Facebook). Each of these ways has positives and negatives. Where you are in your financial life and your personal values will determine which action you take to acquire the things you need to live. For example, you may want to own your home rather than rent or live with others, because you value the privacy and peace of mind in completely controlling your living arrangements.

  5. Debt can be your friend if you understand how to use and not abuse it. Only use it for the big purchases in life such as a well-researched college education, purchase of a home or a vehicle needed to get to work. Buy the big ticket items you can afford. Don’t overextend yourself to purchase the bigger house or a fancier car than you need. The major caveat here is you should only use debt if you can afford it and can comfortably repay the obligation.

  6. There are certain financial risks you must identify, eliminate or minimize. These include:

  • Education Risk – The risk of obtaining too much or too little education, or pursuing a trade, concentration or profession that will not qualify you to earn reasonable cash income.

  • Cash Income Shortfall Risk – The risk of not earning sufficient cash income to support your needs.

  • Disability Risk – The risk of becoming physically or mentally disabled and not able to work.

  • Health Risk – The risk of becoming ill and not having sufficient resources to pay for the costs of care. This risk includes providing for the cost of long-term care during the Returning Stage. The long-term care need is what I call the “risk elephant in the room.”

  • Premature Death – The risk of dying too young and not being able to earn the income and accumulate the assets necessary to support your needs or leave funds to provide for the future needs of your dependents. In the famous Motown song sung by the Temptations, “Papa Was a Rollin’ Stone,” the lyrics went something like: “Papa was a rollin’ stone. And when he died, all he left us was alone.” Be it a man or a woman, dying too soon and not leaving cash for your dependents is likely not what you want to do.

  • Debt Risk – The risk of accumulating or relying on too much or too costly debt such that the debt cannot be comfortably repaid from current cash income.

  • Liability Risk – The risk that you will physically, emotionally, professionally or financially harm someone in an accident in your car, home or other physical or digital location and be held legally responsible to pay cash damages to the person you harmed.

  • Longevity Risk – The risk that you live a very long life and won’t have the cash income to pay your living expenses. It is the risk of running out of money in old age when you are unable to work, which is a common concern in our society today.

You need to understand each of these eight financial risks and how they can negatively impact your journey through the FinancialVerse.


7. Time is an advantage you must utilize. The sooner you take charge of your journey through the FinancialVerse, the sooner you will progress. Time is your friend when you are young and can be a challenge when you are older. You can’t get the years back. Remember the saying, “You can’t make a baby in one month with nine women.” Certain financial things in life take time and proper planning; they cannot be overcome with last-minute actions.


Here is a quick example of the importance of taking advantage of time. Let’s say you want to start saving for the older years of your life when you are not working full time. You have two options—begin saving $10,000 per year at age 22 or wait until age 32 to start the program. Let’s assume you can earn 7 percent on your money through a combination of stocks and bonds. Let’s see what this looks like.


Here is what you would accumulate if you started saving at age 22 at a 7% return:

Here is what you would accumulate if you started saving at age 32 at a 7% return:

By starting ten years earlier, you would have accumulated $1,381,621 more. That is the difference between the amounts of $2,664,209 for age 22 and $1,282,588 for age 32. A delayed start can result in having almost half as much in accumulated savings to fund the later years of your life. This simple example shows the impact of starting a disciplined savings approach early in your financial life and the power of compound interest income, which we will discuss later.


8. Know the gatekeepers who can derail your progress. These are entities that can have a positive and negative impact on your journey such as banks, credit rating agencies, insurance companies and other financial institutions. You need to understand how these entities impact your ability to get the protections or credit you need to be successful.


9. Starting over or hitting the reset button during your journey through the FinancialVerse can be very costly and can have major negative effects on your travels. Hitting the reset button in the FinancialVerse usually means filing for one or more types of bankruptcy.There are both positive and negative aspects of bankruptcy that must be thoroughly understood.


10. Look for guides or coaches to help you navigate and succeed. As in life, having good financial role models and knowledgeable coaches can markedly improve the success of your journey. In the FinancialVerse, there are a number of resources such as financial advisors, planners, life insurance agents or investment professionals available to you. Seeking advice when it is needed is essential to helping you stay on track and reaching your short- and long-term goals who you choose to consult will depend on where you are in your journey and what problem you are trying to solve.


The ten basic rules are just that – guidelines you should understand and follow. Combining my 40-year journey through the FinancialVerse and my 30-year business career, I have learned the important principles that help create financial success. By following this checklist and applying the rules to your own life, you can improve your financial know-how and confidence about navigating the voyage ahead.





29 views

2020 by NelsonWells, LLC

Subscribe to Our Free Moneysavers