99 Personal Money Management Principles to Live By
Animated Video Summary by the Swedish Investor
Key Takeaways
No matter which stage you’re at, the road towards financial independence can be shortened by playing a great financial defensive. Here is a deep dive into this play style by revealing some of its most efficient strategies.
1. 10 QUICK Tips to Save You Tens of Thousands of $$$
1: Have an emergency month every January. For those of you who are frugal and competitive at the same time, turn the beginning of the year into a savings race. January is the perfect month as most people spend too much money during December because of holidays and expensive gifts.
2: Shop around for discounts. Always Google “….” discount code before buying online. Replace the “…” with the name of the product or brand that you’re looking for. You’ll be surprised by how often you can save money by doing this.
3: Purchase last year’s model on high ticket items. Or the model from two years ago. I have an iPhone 6 right now instead of an iPhone X and it does everything I can expect from a smart phone. And none of my friends think less of me because of it … I hope.
4: Spend now to save later. There are many instances where you can spend now to save a lot of trouble and money later. For example: Car maintenance, a gym membership and yearly health exams.
5: Don’t ever buy on credit. If you can’t afford it now wait until you can. That home entertainment system will likely cost more than $16,000 instead of $10,000 just because you bought it before you could afford it. A house or apartment should be the only exception to this rule.
6: Insurance: Choose the highest deductible for your home, automobile and health insurance. An insurance is there to protect you from the riskiest scenarios that can put you in personal bankruptcy. Pick the highest deductible as it will protect you from such occurrences at the lowest possible price.
7: Insurance: Don’t get any other insurance. There’s no need to get an extra insurance on your TV, your expensive watch or similar. In the situation that something unfortunate happens to these items, you often have enough money to replace them and they’re not necessary for your daily life anyway. Consider life insurance though if you have a family that you are providing for.
8: Buy generic grocery and drug products. They’re manufactured by the same brands anyway, so why pay extra for a better looking packaging? You’re going to consume it not look at it.
9: Use cash as often as possible. When you go shopping decide what your maximum spending amount is for that day. Bring that amount in cash and leave your debit and credit card at home. Stores are designed for you to spend more than your first planned. If you’ve ever been to one of IKEA’s furniture stores you know what I mean.
10: Get your books at the library. The one reason to buy a book is if you want to reference to it later. Otherwise just borrow them at a library.
2. It’s NOT as Terrible as it Sounds – Develop a Budget!
It all starts here. Some smart people at a famous consulting firm once stated that what you can measure you can manage. The inverse also holds true: What you don’t measure you can’t manage. Don’t let your personal finance end up in this spot.
There are three necessary steps to budgeting: Develop, track and analyze.
Step 1: Develop your budget. Begin by listing what is going into your pocket on the left-hand side of a paper. The best way to do this is to do a yearly income estimate and then divided by 12.
Common types of income are: Salary, bonuses & commissions, dividend & interest and gifts.
- On the right-hand side write down your expenses. Do the same thing here – estimate your yearly expenses and then divide it by 12.
- List necessities first. This could be housing, utilities, automobile, food, insurance payment on loans and savings.
- Always remember to pay yourself first!
- If you’ve done this right you probably have a larger amount of money on the left-hand side than the right-hand one. Otherwise, you will need to reconsider what you think are necessary expenses.
- The difference could be used for other things such as: Entertainments, extravagances, holidays or to generate more assets.
- How you decide to spend this money is up to you, but you should rank what you think is most important among these things and then dedicate your budget accordingly.
Step 2: Track Your budget will never turn out the way you planned. In the second step, you should track your expenses for a month, and in the long run, a year.
Step 3: Analyze how your planed income and spending differ from the tracked one. Some of these differences might please you. For instance, you might have received a bonus that you didn’t expect. Others might displease you … For instance, maybe spent too much money buying drinks for your whole division at the after work party following that bonus. Are you really spending according to the prioritization that you did a step one? If so, great job. If not, it’s time to rethink your lifestyle choices!
3. Invest 50% of Every Salary Increase
This is as close as you can get to having the cake and eat it too. You can have the best of both worlds, and over time, this will make your frugal force to be reckoned with, saving up to fifty percent of your total salary!
It’s a great way of obeying “pay yourself first” and to accelerate your way towards financial independence. And think about it: You were living on your old salary before you got a raise, right?
Why do so few individuals do this? The primary reason is because people get behind in the first place. They live above their means with huge liabilities and credit card debts, and when they finally get a raise, every single penny goes to playing catch-up with those expenses.
A pro tip to never end up in a situation like this is to take the first few years when you recently graduated from college and keep living like a student. You did it for many years in college, so why not give yourself a head start in the race towards financial freedom by keep doing this for one or two more years?
4. Develop and Maintain a Good Credit Score
A good credit rating is essential for many areas that affect your financial health:
- It allows you to get a mortgage.
- You will get the most favorable interest rates.
- Renting an apartment becomes easier as landlords look at it.
- Getting a job becomes easier as employers look at it, too.
I hope this sounds like a no-brainer. Having a good credit score allows you to spend less, earn more and be more flexible when it comes to where you wish to live.
Here are a few things to keep in mind for your score to stay healthy:
- Avoid buying on credit.
- Avoid using a credit card.
- If you feel like you must use a credit card, always remember to pay the balance every month and never use more than 35% of your maximum credit.
- Automate returning monthly expenses such as rent, cell phone, gym membership and Netflix. This way you’ll never forget to pay them by accident.
5. Pick Your Partner Like You Pick Your Stocks – Careful, and with Consideration
Well … perhaps even more carefully. Warren Buffett suggests that most investors could benefit from having a ticket with only twenty slots. Each punch representing one new investment and the ticket itself representing your investment career.
This means that you can only make twenty investments in your lifetime. Hopefully you won’t need that many chances with a significant other, both for the sake of your wealth and your sanity. And we are drawing parallels to one of the world’s greatest long-term investors right now.
One of the most important economic decisions of your life, if not, the most important one, is choosing a partner with great financial habits. This personal quality is often ignored during the dating process.
Most people misrepresent their financial situation by setting a high bar – buying expensive dinners and luxury items that they can’t afford to keep up with later in the relationship. Don’t do this!
One of the top three things that couples fight about is money. The other two that ranks the highest are free time and housework, which are also correlated to money. So if you want it to last in the long run, be your true financial self right from the get-go.
Financially, it’s the long run that we’re aiming for. A divorce is devastating, again, not just for your wallet, but also for your psychological well-being. The best you can hope for during a separation is to split your wealth in half. That’s similar numbers as the worst bear market in history produced for stock owners!
Furthermore in the worst case, you lose almost everything due to legal fees, administrative costs, excess living cost and child support. Obviously don’t over do the dating thing. You don’t have to take him or her to McDonald’s on your first date while asking about their credit rating, how many credit cards they own and tell the person about how you are now successfully spending $5 less every month by keeping your jacket on – heating off – indoors.