Hard to believe it was twenty years ago. That was when I wrote a column called “The 7 Laws of Personal Finance.” It summarized what I had learned in the previous twenty years. The laws were dirt simple. They served me, and many readers, very well.
But that was then. What about tomorrow? What should a young person do to achieve financial freedom and peace, starting yesterday? Here’s a list of six new laws.
You are your biggest asset. Treat yourself accordingly.
This rule has multiple layers. One layer is to recognize that unless you are blessed (or cursed) with a major inheritance, virtually all of the money you spend will be the money you earn. So take good care of the earning asset that you are. Your natural productive life is longer than the vast majority of businesses. Your value will depend on your ability to adapt and learn. It will also depend on your health. Welcome to part of life where your decisions and actions are powerful levers on your future.
Want, above all, to help others? Start with yourself. This is not selfish. There’s a reason airline passengers are told to put their oxygen mask on first, before they help others. You can’t help others if you aren’t functional.
Find a partner.
Marriage is neither fashionable nor appreciated these days. But two people, together, are more likely to cope with the difficulties of life than one person, alone. Even after the incredible project of raising children, all the evidence shows that couples have a better chance of financial security singles. This will be more important, not less important, as we face global stresses, enormous change and financial upheaval. Love, care and nurture are what keep us going.
Don’t trust anyone over 30.
I know, that was one of those flower children rules from the “turn-on, tune-in, dropout” 1960s. But it’s true. No one is looking out for you today. No one will look out for you in the future. Skeptics can consider the mess we have in student education loans. Then think about the disappearance of pensions for workers. Don’t ignore the unceasing effort to cut head-counts and jobs. And don’t forget the popular notion of cutting Social Security benefits for the young, while maintaining them for the elderly. You’re going to need to stand up and fight for your future because the Big Dogs are in their corner, not yours.
Avoid the shackles of debt.
The fastest way to become a slave is to listen to the voices urging you to “treat yourself” to this, or give yourself that, because you “deserve” it. Fall for it and you’ll lose your ability to negotiate your salary. Not to mention making proactive decisions about your future. Yes, I know this isn’t easy: Our entire economy is based on our willingness to carry a horrible burden of monthly payments. Fight it.
Appreciate the immense power of cash.
Have the largest cash reserve you can muster. Then make it larger. Yes, I know the average bank account yield is only 0.15 percent. But if a six-month reserve on a $50,000 salary will allow you to negotiate just one additional percentage point of raise, that reserve has helped you earn more than $333,333 would earn in a bank.
Reserve cash is true Super Money. It’s the money that buys houses, cars and other assets dirt-cheap when debtors have to sell because the economy has tanked.
Be wary of tax deferred investment accounts.
The original idea behind IRAs and 401(k) s was that you could save income taxed at a high rate today, enjoy tax-deferred growth and then withdraw your money at a lower tax rate when you retired. But the taxation of Social Security benefits means that won’t happen for people who are successful savers.
Other tax increases are likely to reduce the value of tax deferred savings programs still more. So unless your employer offers a super low-cost plan and a hefty match, save and invest on your own. One side effect: it will augment the power of your cash.
Curious about the 7 Laws of Personal Finance? Read the original column here.