The 5 Biggest Truths in Personal Finance

I’m a big picture thinker, especially when it comes to my finances. I’d rather not be spending my time thinking about spreadsheets and budgets when that mental space could go to family and friends.

As you think about your own financial situation, it’s easy to feel overwhelmed. We all tend to be a bit more emotional about our own finances than we would be when giving advice to others. We just have a clearer mind when thinking abstractly.

For that reason, I think it’s good to take a step back and say “what advice would I give myself if I were a friend”?

If I were advising a close friend or a close family member on how to get their personal finances back in order, I would make a point to keep things simple. There are really only a few key ideas you need to get right, and the rest pretty much takes care of itself.

What are the big ideas? Well, the rest of this post is my best attempt at laying them out. These are exact things I’d share personally with anyone I know who needs help.

2 truths for growing your money:

Spend less than you earn. If you only followed one rule, definitely make it this one. It’s so hard to make this happen that my wife and I had to start putting all my side-hustle money in a separate bank account. We had to live as if it didn’t exist, and slowly over time that number has grown and grown.

Start investing now, if you haven’t started, and make it automatic. Investing for the future is one of the easiest things in the world to put off. The future when you’ll need the money seems so far away, but you want as many years as possible for compounding to work. Make it automatic so you don’t have to revisit that decision every month.

2 truths for avoiding disaster:

Keep some cash handy for emergencies. Everyone in personal finance talks about an emergency fund for good reason. For one, it removes a lot of stress when you know you have a few months of expenses saved up in cash. And most importantly, once you have this foundation, you won’t be tempted to put surprise expenses on high-interest credit cards and get yourself caught in that trap.

Don’t skimp on insurance. Nobody, and I mean nobody, assumes they are going to be the rare person who has a life-threatening health condition or watches their house catch on fire or accidentally injures someone in a car accident. These unlikely events happen, though, and will flip your life upside down if you aren’t insured. Don’t make the mistake of rolling the dice.

1 truth for avoiding mistakes:

Don’t compare your finances with others. Now that your wealth is slowly growing and you’re insured against some of the worst case scenarios, there’s only one thing that can derail you: your own mind. Envy of others is a horrible mental disease that robs you of happiness and leads you to make short-sighted decisions. Each of us have different circumstances thanks to fate and the prior choices we’ve made, the best attitude is radical acceptance of where you are.