A little while back I began jotting down some of the rules that I try and live by when it comes to personal finance. Eventually, I turned it into what you see below, something I’m calling a personal finance vision statement. My plan is to update this over time as I continue to learn more about money, investing and life. For now, here is version one.
Spending
- I prioritize spending money on experiences that create lifelong memories for myself and the people I love.
- I avoid spending money on things that only bring short-term satisfaction.
- I take into account the cost of ownership when making buying decisions, including money, time and headaches.
Financial Planning
- I measure my financial condition in terms of net worth, not income, with the understanding that my biggest asset at this stage of my life is my human capital.
- I do the work to prepare for the worst-case scenario, such as establishing an emergency fund, getting my estate plan in order, and purchasing insurance. Then I go enjoy my life.
- I save aggressively and invest aggressively.
Investing
- I don’t lend (buy bonds) when I can own (buy stocks).
- I stick to my investment plan regardless of current events, my mood, or recent investment performance.
- When investing, I take into account the costs of investing, including investment fees, taxes, professional fees, headaches, and time.
- I invest according to evidence, not fads, feelings, or gimmicks. I never try to time the market. Instead, I invest as early and as often as possible.
- I avoid unnecessary risks and embrace those risks that are worth taking.
- I diversify because I don’t know the future. I freely admit that I am not, nor is anyone else, smarter than the collective wisdom of the market.
- I ignore the news, the market forecasters, the talking heads, and my friends and neighbors when making investment decisions.
Taxes
- I don’t complain about taxes. I pay the taxes I owe according to the law and I pay them on time.
- I look to reduce my taxes, but I don’t obsess over it. I do a few simple things that will reduce my tax burden over the course of my lifetime.
Perspective
- I don’t blame others for my poor financial decisions. Instead, I learn from them.
- I accept the fact that there are no guarantees in life, and much of what impacts my finances is beyond my control.
- I invest as a way to participate in the miracle of market capitalism.
- I recognize the role of luck, and I appreciate how fortunate I am to have been born at the most prosperous time in history in the wealthiest country on the planet.
