32 Mostly Unbreakable Rules of Personal Finance

In the often confusing landscape of personal finance, navigating the many decisions and choices can feel overwhelming. Yet, amidst the complexity, there exist a few steadfast principles — rules of personal finance that serve as guiding lights through the ever-changing currents of economic uncertainty. 

personal finance rules

Below are 32 mostly unbreakable rules of personal finance, a comprehensive guide distilled from decades of financial wisdom and the practical insights of financial planning enthusiasts. These rules offer a roadmap to financial stability, security, resilience, and prosperity. 

1. Always Pay Off the Credit Card

This is – by far – the most recommended personal finance rule by planning enthusiasts.

Paying off credit cards is fundamental to healthy financials. Credit card debt typically carries high-interest rates, which can quickly accumulate and become unmanageable if left unpaid. 

By paying off credit cards every month, you avoid accruing interest charges and unnecessary fees, saving money in the long run. Moreover, consistently paying off the credit card promotes responsible spending habits and prevents the accumulation of debt beyond one’s means. 

Bonus: It also helps you build and maintain a positive credit history, which is essential for accessing favorable loan terms and other financial opportunities in the future. 

Bonus debt rule: Don’t borrow at all (except for a home)

By adopting a policy of minimal borrowing, you can maintain better control over your finances and avoid the stress and burden of debt repayment.

Exceptions like borrowing for a home (and in some cases education or a car) are often made when borrowing helps you build wealth. Most notably, real estate purchases typically involve large sums of money that many people cannot afford to pay in cash. Mortgages, are considered “good” debt because they are usually lower in interest compared to other forms of debt and can potentially appreciate over time.

By limiting borrowing to essential needs like homeownership, you can reduce the risk of financial strain and focus on building wealth through saving and investing. This approach promotes financial independence, stability, and peace of mind.

Contrarian view: always use someone else’s money

“Always use someone else’s money” is a principle often cited in the context of business or investment strategy. It refers to leveraging other people’s resources, such as loans, investments, or partnerships, to finance ventures or projects instead of relying solely on one’s own capital. In personal finance, the most common example of using someone else’s money is using a mortgage to buy a home.

By using other people’s money, you can amplify your financial capacity and potentially achieve greater returns or growth than they could with their own resources alone.

However, it’s important to note that while leveraging other people’s money can offer advantages in terms of financial leverage and scalability, it also entails risks, such as debt obligations, equity dilution, or conflicts of interest. Therefore, prudent financial management and risk assessment are essential when applying this principle in practice.

2. Spend within Your Means

This is the second most recommended rule of personal finance.

Spending within your means is the foundation of getting ahead. By living below your means, you can save, invest, and achieve other financial goals, ultimately paving the way for financial freedom and security in the long run.

Overall, spending within your means is essential for achieving financial stability, reducing financial stress, and building a strong financial future.

3. Live a Little

Contrary to what most financial writers think, many of the people reading financial content actually over-save, over-plan, have overly conservative assumptions in their plans, and live very frugally.

To these people, Larry recommended, “Quit overthinking and live a little!”  And, Michelle commented that she is really trying to “learn to get the water view, buy the seats closer to the stage, not pick cheap 6 am flights, and go top shelf.”

Ultimately, “live a little” reminds us to strike a balance between enjoying the present moment and planning for the future, fostering a healthier and more sustainable approach to both finances and overall well-being.

A few useful articles if you need help learning to spend:

4. Maintain an Investment Policy Statement

An Investment Policy Statement (IPS) is a formal document that outlines your investment goals, strategies, and guidelines. It serves as a roadmap for making informed investment decisions, aligning portfolios with risk tolerances, time horizons, and financial objectives.

Not everyone has heard of an IPS, but maintaining this document can be a crucial rule of personal finance because it provides a structured framework for guiding investment decisions. Following a predetermined plan is better than reacting impulsively to market fluctuations or emotions.

Joel believes in maintaining a basic IPS:  “For me this means a simple portfolio of low cost index funds that I hold in a 60/40 portfolio in good times and bad. It’s not flashy, but it’s effective,” commented Joel.

Allen added, “There is nothing like having a codified strategy to help prevent ad-hoc, irrational decisions!”

A good IPS can keep you on track with investing basics like: 

  • Don’t try to time the market
  • Never panic sell
  • Don’t buy based on greed
  • Don’t play short-term games with long-term money
  • Stay the course
  • Ignore the noise
  • Never sell in a down market
  • Buy low and sell high
  • Ride through the crashes

5. Understand How Emotions Impact Financial Decisions

Emotions such as fear, greed, and overconfidence can often cloud judgment and lead to impulsive or irrational financial decisions, such as panic-selling during market downturns or overspending during periods of euphoria. 

By recognizing and managing these emotional triggers, individuals can avoid costly mistakes and maintain a disciplined approach to money management. Furthermore, understanding the psychological aspects of finance enables individuals to cultivate patience, resilience, and emotional intelligence, essential qualities for navigating the complexities of the financial landscape with confidence and prudence. 

Ultimately, mastering the interplay between emotions and financial decisions can lead to greater financial security, peace of mind, and overall well-being.

Are you an emotionally intelligent investor?

6. Recognize the Relationship Between Money and Time

Money is not merely a medium of exchange; it represents the value of the time and effort you invest in earning it. Recognizing this connection empowers you to make informed decisions about how you allocate your resources. 

Every financial transaction involves a trade-off between the money you spend and the time it took to earn that money. By evaluating these trade-offs thoughtfully, you can prioritize your spending in alignment with your values and goals, ensuring that your time is invested wisely in activities that bring you the greatest satisfaction and fulfillment.

This mindfulness can lead to more intentional decisions and enable you to strive for greater financial security, pursue your passions, and live a more fulfilling life.

How are you measuring time use?

7. Don’t Inflate Your Lifestyle

Inflating one’s lifestyle by constantly upgrading possessions, housing, or indulging in luxury expenses can lead to financial fragility and hinder long-term wealth accumulation.

By avoiding lifestyle inflation, individuals can allocate more funds towards savings, investments, debt reduction, and other financial goals, thereby building a stronger financial foundation. This principle promotes living below one’s means, fostering financial stability, resilience, and the ability to weather unexpected financial challenges while also ensuring a more secure financial future.

Learn more about consumption smoothing.

8. Understand How to Make Good Financial Decisions

Understanding how to make good financial decisions is paramount for achieving financial stability and reaching long-term goals. 

It involves a combination of financial literacy, critical thinking, and self-awareness. Good financial decision-making begins with a solid understanding of one’s financial situation, including income, expenses, assets, and liabilities. It also requires the ability to assess risks and rewards, prioritize needs over wants, and make informed choices about saving, spending, investing, and borrowing. Moreover, cultivating patience and discipline is essential, as many financial decisions have long-term implications. 

The NewRetirement Planner is a great partner for you making good financial decisions. 

9. Prioritize

You can’t have it all. You can have what is important to you.

Prioritizing allows you to allocate your limited resources effectively towards what matters most to you. 

By identifying and ranking your financial goals based on importance and urgency, you can focus your efforts on achieving the objectives that align with your values and aspirations. Prioritizing enables you to make strategic decisions about how to allocate your income, savings, and investments, ensuring that you are directing your resources towards the most significant areas of your financial life. 

Moreover, prioritizing helps you stay focused and disciplined, avoiding distractions and unnecessary expenses that may derail financial progress.

10. Invest

Savings is necessary, but so is investing. When you invest you are making the money that you have earned make more money.

Investing offers the potential to grow what you have earned. By putting your money into assets such as stocks, bonds, mutual funds, or real estate, you have the opportunity to earn returns that outpace inflation and increase your net worth.

And, this money helps you achieve long-term financial goals such as retirement, buying a home, funding education, or starting a business. By investing wisely, you can build the necessary funds to realize these aspirations and secure your financial future.

Understand the differences between investing and gambling or speculation

Some people confuse investing with speculation or gambling. Chuck’s personal finance rule is: “Don’t gamble what you can’t afford to lose.” He means that money you need or want should not be put into speculative investments.

Investing and gambling are both activities involving the potential for financial gain or loss, but they differ significantly in their underlying principles and objectives:

  • The purpose of “investing” is to build wealth. The purpose of gambling (even taking risk in the stock market) is entertainment or thrill.
  • Investments are typically best made with a long time horizon to enable recovery from short term losses. Gambling typically offers immediate gains and losses.
  • Investment risk can be mitigated by research, diversification, and by following a IPS. With gambling, the odds are simply stacked against you.
  • Successful investors maintain emotional discipline. Since gambling is supposed to be for entertainment, the emotions are the point.

Invest consistently (regardless of market highs and lows)

Consistent saving and investing is crucial for long-term financial success as it allows you to take advantage of the power of compound interest and mitigate the impact of market volatility.

By investing regularly over time, you benefit from dollar cost averaging, a strategy where you purchase assets at varying prices over time, rather than trying to time the market. This approach reduces the risk of investing a large sum of money at an inopportune time and helps smooth out the effects of market fluctuations.

Additionally, consistent investing instills discipline, helping you build wealth gradually and achieve their financial goals. Whether it’s for retirement planning, saving for a major purchase, or building an emergency fund, committing to regular investments can lead to greater financial security and peace of mind in the long run.

Understand investment risk (and the risks of avoiding risk)

Appropriate risk for investments depends on individual factors such as age, financial goals, time horizon, and risk tolerance. Generally, younger individuals with longer time horizons and higher risk tolerance may opt for a more aggressive investment approach, allocating a larger portion of their portfolio to riskier assets like stocks.

Conversely, older investors nearing retirement may prefer a more conservative strategy, focusing on preserving capital and generating income through less volatile investments like bonds. However, avoiding all risk when investing can be a bad decision because it often means settling for low returns that may not keep pace with inflation

11. Have an Emergency Fund

Having an adequate emergency fund in place not only offers peace of mind but also promotes financial stability and resilience, allowing individuals to weather financial storms without derailing their overall financial goals or accumulating unnecessary debt.

Emergency savings prevent you from going into a financial hole that can be difficult to escape.

The 10/20 rule

Kamari believes in the 10/20 rule of having 10 times your monthly expenses saved in an emergency fund and being on track to having 20 times your annual salary for retirement.

While many people agree that having a robust emergency fund is maybe the most important rule, having twenty times your annual salary saved for retirement is more controversial. (It is better to build and maintain a holistic financial plan with the NewRetirement Planner and save what you need.)

12. Communicate with Your Spouse

How is this a financial rule? Well, effective communication allows you to align your financial goals with those of your spouse. This ensures that you’re both working towards common objectives, whether it’s saving for retirement, buying a home, or funding your children’s education.

Rob wrote, about important it is to share information with your partner. His rule for personal finance involves transparency, “When my wife and I spend money on our own, there is full transparency and visibility with our spouse.”

13. Never Loan Money to Family or Friends

Many people believe that you should avoid loaning money to family or friends because it can strain relationships and lead to resentment or misunderstandings if the terms are not clearly defined or if repayment is not made. Additionally, financial transactions within personal relationships can blur boundaries and create dependency dynamics that may harm both parties in the long run.

And, research suggests that loans to people you know end badly about half the time, making it a decent personal finance rule.

Charles said, “Never loan money to family members or friends. If it is a true need, and you can afford it, just give them the money. And then, forget about it and never bring it up again.”

And, Tim suggested a tax strategy for friends and family loans that have gone bad: “Have a loan document with stated interest. If they don’t repay, take a capital loss. (You don’t have to issue them a 1099.)”

14. Pay Yourself First and Other Savings Rules

There are all kinds of great personal finance rules around saving. Pay yourself first is a good one. As Jeff said, “Pay your future self above anything else.”

Paying yourself first is crucial because it prioritizes personal financial goals and savings before other expenses. By setting aside a portion of income for savings or investments as soon as it is received, individuals establish a habit of saving and ensure progress towards their financial objectives, whether it’s building an emergency fund, saving for retirement, or achieving other financial milestones.

Here are a few other rules related to savings:

Understand the savings playbook

The savings playbook is a prioritized list of savings goals. Start by making sure you have an adequate emergency fund, then:

  1. If working, save enough to capture your employer’s match
  2. Pay down high interest debt
  3. Max out an HSA, if available to you
  4. Contribute the max to an IRA
  5. Contribute the max to your employer plan
  6. Contribute to an after tax or 529 account
  7. Pay off low interest debt

Prioritize retirement savings

Unlike other financial goals, such as buying a home or funding education, retirement savings are essential for maintaining a comfortable standard of living during retirement. Starting early and consistently contributing to retirement accounts allows for the power of compounding to work in one’s favor, potentially yielding significant growth over time. By prioritizing retirement savings, individuals can build a financial safety net that provides peace of mind and enables them to enjoy their golden years without financial stress.

15. Don’t Pay AUM

AUM stands for Assets Under Management. It is a common way that financial planners and wealth advisors charge for their services. – the client pays a percentage of the amount of money the advisor is managing.

The problem is that most investment advisors can not and will not out-perform the market as a whole and it can be far more cost effective to invest in low cost index funds instead of the fancier portfolios that can be constructed by an advisor.

Jim pointed out,  “I have come to learn how insulting it is to my intelligence for someone to offer charging me 1.5% to manage money I earned.”

So, what is the alternative if you are not comfortable investing on your own? You can look for a fee-only advisor who charges a flat fee for investment advice.

16. Keep Investment Costs Low

High investment costs, such as management fees, commissions, and expense ratios, can significantly erode investment returns over time, reducing the overall value of your portfolio.

To minimize costs, investors should prioritize low-cost investment vehicles, such as index funds or exchange-traded funds (ETFs) , which typically have lower expense ratios compared to actively managed funds. Additionally, avoiding frequent trading and excessive portfolio turnover can help reduce transaction costs and minimize the impact of taxes on investment returns.

By focusing on cost-conscious investing strategies, investors can retain more of their investment gains, compound returns more effectively over time, and achieve their financial goals more efficiently.

Shannon’s number one personal finance rule, “Don’t let friends invest with Edward Jones!” (Their costs can be high.)

17. Don’t Invest in Things You Don’t Understand

There are lots of ways to invest and increase your wealth. Some are complicated and require a great deal of expertise. Others, like putting your money into index funds that aims to replicate the performance of a specific market index, such as the S&P 500), are relatively simple.

Whether you are investing through an advisor or on your own, it is a good idea to understand the basics about where your money is, including:

  • Goals – how is the investment helping you achieve your goals
  • Risks – understand the risks associated with the investment
  • Costs and fees – What are your real returns

18. Be Real About Your Returns

Real returns refer to the actual returns earned on an investment after adjusting for the effects of inflation, providing a measure of the investment’s purchasing power gain or loss in terms of goods and services.

Inflation is a serious risk to growth of wealth.

19. Buy a House

There are so many reasons to buy a house.

Home ownership allows individuals to build equity over time, providing a form of forced savings and potential appreciation in property value. Additionally, mortgage payments, particularly on fixed-rate loans, offer stability and predictability compared to fluctuating rental costs, providing long-term financial security.

Owning a home also offers tax advantages, including deductions for mortgage interest and property taxes, potentially reducing overall tax liability. Moreover, owning a home provides a sense of stability and pride of ownership, contributing to emotional well-being and quality of life.

Finally, for those who choose to sell their home later in life, the equity built can serve as a source of retirement income or funding for other financial goals.

20. Marry Wisely

Jeff pointed out that marrying wisely is, “Not about marrying for money, but about values, moral, character, goals,, attitudes about money, etc.”

Wisely or not, get a prenup

Many people recommend a prenup, especially for marriages later in life when there are more assets at stake.

21. Don’t Buy Stuff You Don’t Need

This rule seems obvious, but it is hard to resist spending temptations. It can be a good idea to really evaluate what is a want or a need. Here are a few quick tips for spending mindfully:

  • Establish and follow budgets
  • Establish a waiting period for purchases
  • Don’t rent a storage unit to store extra stuff you’ll never use
  • Avoid buying things that depreciate

22. Learn About Personal Finance and Keep Learning

Like it or not, money is an important part of everyone’s life. And yet, financial literacy is ridiculously low by all segments of the population. A good personal finance rule is to develop habits around learning about money.

Caveat: When reading financial blogs, listening to podcasts, reading finance books—remember that many people are trying to sell you something. So, always try to understand their point of view and take advice with a grain of salt and research what you learn from them.

23. Set Goals

Setting financial goals is essential as it provides direction, motivation, and a roadmap for achieving financial success. Without clear goals, you may lack focus and discipline, leading to aimless spending, saving, and investing.

By establishing specific, measurable, and achievable financial objectives, you can prioritize your resources, track progress, and make informed decisions that align with your aspirations.

24. Protect Yourself from Risks

The unexpected is going to happen. Things are not always going to go according to plan. And, this is why you need to do what you can to protect yourself from potential financial risks.

By identifying and assessing various financial risks such as market volatility, inflation, job loss, or health emergencies, individuals can implement strategies to mitigate these risks, such as building emergency funds, purchasing insurance, or diversifying investments.

25. Shop Your Insurance Regularly

Insurance is a big (but necessary) expense.

Shopping for insurance regularly is essential to ensure that individuals are getting the best coverage at the most competitive rates. Insurance premiums can fluctuate over time due to various factors such as changes in personal circumstances, insurance company policies, and market conditions. By shopping around regularly, individuals can compare quotes from different insurers to find potential savings or better coverage options.

26. Understand Taxes

Taxes are another big (but necessary) expense.

Strategizing to minimize your tax burden can significantly improve your financial status.

Go beyond tax filing and plan to pay less in the future with these 25 tax planning tips

27. Look for Passive Income Opportunities

Passive income involves generating revenue streams that require minimal ongoing effort or active involvement once established. This can include income from rental properties, dividends from stocks, interest from bonds, royalties from intellectual property, or profits from automated online businesses.

Unlike traditional employment, where you exchange your time and labor for income, passive income allows individuals to build wealth and achieve financial independence by creating assets that generate recurring revenue streams over time.

Multiple income sources can diversify income risk, enables individuals to break free from the constraints of traditional employment, offer control over your time and lifestyle, and help you grow income exponentially.

Overall, a passive income strategy offers a pathway to financial freedom, allowing individuals to build wealth, pursue their passions, and live life on their own terms.

28. Invest in Yourself

Whether it’s acquiring new skills, pursuing hobbies, or prioritizing self-care, investing in yourself is a wise and rewarding endeavor that yields dividends in every aspect of your life.

Continuous self-improvement increases the likelihood of career advancement, higher salaries, and better job opportunities, resulting in increased income over time. Furthermore, investing in personal development and well-being, such as maintaining a healthy lifestyle or pursuing hobbies and interests, can lead to improved productivity, reduced healthcare costs, and a higher quality of life.

29. Budget

Maintaining a budget is important for several reasons. Firstly, it provides a clear picture of your financial situation by tracking income and expenses, helping you understand where your money is coming from and where it’s going. This awareness is crucial for making informed decisions about spending, saving, and investing, enabling you to prioritize financial goals and allocate resources accordingly.

30. Talk About Money

Money is widely considered to be a taboo topic. However, you can learn a lot from the financial mistakes and triumphs of your peer group.

Ultimately, talking about money promotes financial literacy, strengthens relationships, and builds a supportive community around financial well-being.

31. Location, Location, Location

Where you live is a huge contributor to your financial wellness. It determines the kind of job you have, the salary you can earn, how much you need to spend, your friends, lifestyle, and so much more.

Choose where you live very wisely.

32. Develop Good Financial Habits and Maintain a Holistic Financial Plan

While each of the rules outlined above holds its own significance in navigating the complexities of managing money, maintaining a holistic financial plan emerges as the most pivotal.

A holistic financial plan encompasses a comprehensive approach to managing one’s finances, considering various aspects such as budgeting, saving, investing, debt management, insurance, and estate planning. By integrating these elements into a cohesive strategy tailored to individual goals, priorities, and circumstances, individuals can build a solid foundation for financial stability, security, and success over the long term.

Moreover, a holistic financial plan provides a roadmap for making informed decisions, adapting to life changes, and weathering economic uncertainties, ultimately empowering individuals to achieve their financial aspirations and live life on their own terms. As such, while each rule contributes to financial well-being, it is the overarching framework of a holistic financial plan that guides individuals toward a brighter and more secure financial future.

Create your plan with the NewRetirement Planner.

NewRetirement Planner

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NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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