I’ve been listening to lots of podcasts lately and came across Jordan Peterson, a Canadian Professor of Psychology and Clinical Psychologist, and involved in the so called intellectual dark web. Look it up if you haven’t heard about it yet; it is quite interesting.
Mr. Peterson’s recent book is called ’12 Rules for Life: An Antidote to Chaos.’ I haven’t read it yet and am not endorsing Mr. Peterson, though I have found the first few interviews quite interesting. However, the book did give me the idea on what are the 12 Rules of a Financially Literate Life?
So, here they are:
12 Rules of Financial Freedom: An Antidote to Financial Chaos
1. Invest in yourself (get educated). You don’t get rich by saving nickels and dimes. You need to earn money over time. This doesn’t have to be $100,000 per year. There are plenty of stories of people earning $50K per year accumulating wealth with the right habits over time. But you will reach your financial goals a whole lot quicker if you focus on growing your income.
2. Monitor your spending habits (don’t spend more than you earn). Enough said.
3. Prioritize saving over spending. Develop a mindset for getting satisfaction out of saving as much as or more than buying things.
4. Understand compound interest. Not enough people understand the basics of compound interest and the impact it has on your investments over time.
5. Setup an automated bi-weekly investment plan. Setup a plan and stick to it. Remove the manual effort of saving and your future self will thank you.
6. Learn the basics of low-cost diversified stock mutual funds. Stop picking stocks. Select low-cost, diversified stock index funds. If you are older and want to reduce risk with some blend of bonds, go for it. Don’t complicate things. Stick with a few broadly diversified index funds.
7. Pay off your credit cards every month. Never, ever, ever consider leaving a balance on your credit cards. 16% or more interest is outrageous.
8. Don’t ever spend your year-end bonus. It’s your found money. You don’t even need it to get by month to month, so just sock it away.
9. Don’t buy more house than you can afford. This is tough for people in high cost of living areas (like many areas these days), but the less house you can reasonably buy, the better for your financial picture. Since you’re living here, there is understandably a bit more that impacts this decision (spouse, kids, schools, etc.)
10. Drive a used car. The difference in cost between a new and used car is enough to pay attention. Even worse is trading up for a new car every three years and just keeping a drag of the big car payment into perpetuity. Buy used.
11. Max out your 401(k). Hit the limit. $18,500 in 2018. 10% is a rule of thumb but is not putting you above average. Save more, invest more.
12. Pay off your debts. Student loans, car loans, personal loans. Pay them off. There are differing views on what’s the best route to do this, but pick one and do it. Your debt is killing your financial freedom.
Those are 12 Rules that I just came up with. Let me know what your top few would be to move along the path towards financial freedom.