We began this blog with an examination of the single most important idea of personal finance and lifelong happiness.  A few posts later, we mentioned one hundred tips to improve your finances and quality of life.  Today, we outline the 10 Commandments Of Personal Finance.  And no, you don’t even have to change religions!

COMMANDMENT I.  Thou cannot manage what thou does not measure

Translation: Budgeting and tracking is essential to your financial success.

The bodybuilder, trying to deadlift a new personal best.  The corporate executive, trying to profitably integrate a new product.  The dieter, trying to lose those last few pounds.  The athlete, trying to improve a batting average or free throw percentage.  The guitarist, trying to perfect a new song.  The gamer, trying to beat the original Super Mario Bros in the fastest time ever.  And finally, the Centsees (i.e. you), trying to better manage their personal finances. 

What do all of these masters of their craft have in common?  They all rigorously measure their performance.  Personal finance is a skill that can be taught, and no skill can be improved without a willingness to objectively measure one’s performance.

Start by measuring your net worth.  Add up all your assets with real value (cash, savings, car, retirement, property, stocks) and subtract your liabilities (credit card debt, mortgage, student loans, IOU’s, back taxes, other loans).  Here’s an easy tool to calculate it using Excel that takes just a few minutes.  Write the number down, update at least once per year, and keep track of it over time.

Is the number less than zero?  Don’t worry; this number just tells you that it would be best to aggressively cut back on your spending and pay down your debt.  Is that number greater than zero?  Nice start; set a specific attainable goal – whether it’s $10,000 or $1,000,000 – and focus on increasing your assets and minimizing your debt.  Most importantly, is your net worth number increasing month to month or decreasing?  You’ll only be able to tell through measurement.  Tools like Mint (free), Personal Capital (Free), or YouNeedABudget “YNAB” can help track and illustrate your progress, and they will be cover in depth in future posts.

Take this principle and apply it throughout your finances.  How much do you spend each month?  What percentage of your income do you save?  How much do you spend on essentials vs non-essentials?  How close are you to being able to cover your necessary expenses off your savings indefinitely (“financial independence”)?  What is your next financial goal and how quickly can you meet it?  The methodology is the same with each:  Assess where you are; set a goal; and track your progress each month.  Sure it takes a little effort, but don’t postpone it.  Just like the bodybuilder, the executive, and the guitarist, measurement is the key to financial management.

COMMANDMENT II. Thou shalt spend less than thou earns by minimizing the difficult choices

Translation: By limiting the number of decisions you need to make (via automation), you can spend less than you earn all the time without even thinking about it.

At its core, personal finance is about spending less than you earn.  “Wow, great insight, Centsei!”  The trick is knowing how to get there.

We’ve recently examined how to make more money and how to spend less, but to make doing so even easier, the trick is minimizing the number of difficult decisions you need to make.

It is a very “difficult decision” to set aside your “leftover money” at the end of the month for savings and long-term goals.  You only have to make this decision once if you automate your savings.  Set aside a portion of your paycheck to retirement, healthcare (including an HSA or other savings account to cover your deductibles and out of pocket), tax withholding, emergency fund, mortgage/rent payment, and even an account devoted to paying down your debts.  Most payroll companies allow you to split your paycheck between various accounts, so consider going so if you haven’t already.  If your payroll company can’t do it, your bank can, as almost every bank allows you to make weekly or monthly recurring transfers for free to accounts of your choice.  It doesn’t take long to set this up, so do this before sending a dime to your checking account… and don’t touch the money.  This “save first automatically” mentality will virtually ensure that you’re never hit with an unexpected expense.  For example, Lady Centsei and I each have over six different accounts that we devote our paychecks to (retirement, heath insurance, HSA’s, mortgage, emergency, and taxes) before we see any of it.  This one-time setup has made our financial goals a lot easier to attain.

The same is true when it comes to spending.  Your decision should always be between spending on the best option and not spending at all.  Saving should always be the second option.  Change your environment to match your goal.  If you have a financial “trigger” that causes you to spend, eliminate that trigger from your life so there is no longer a decision to be made.  For example, if you have a partying group of friends who cause you to spend frivolously, change your environment to one that limits the time with them and eliminates the decision of whether to splurge with them.  Harness your inner Centsei!

This philosophy can help you in other areas of your life that may or may not connect to personal finance.  Going to the grocery store with a shopping list and sticking to it (“no decisions”) will help you buy more healthful foods and spend less money.  Having a trusted friend assist you through a personal situation or choice can help you be more objective and waste less emotional energy.  Creating a specific schedule for your hobbies and routines can help you be more productive and waste less time.  Quantify your options, reduce irrelevant factors, and focus on the long term, and you will find yourself making more satisfying decisions just about everywhere.

COMMANDMENT III. Remember to keep holy thy recurring expenses, for none is insignificant

Translation: Letting your recurring expenses add up can devastate your finances.

If I asked the average person how much a coffee run in the drive-thru cost, what would you say?  Most would say maybe $3 per day.  Maybe $5.  The average American earned $27.16 per hour in 2018, it’s no wonder that small dollar expenses like this seem trivial.

However, the question was how much that coffee really cost.  A financially astute person might say the coffee cost $100 per month (let’s assume $3 every day or $5 per workday) or $1,200 per year, in after tax income.  The Centsei, nonetheless, would tell you that this recurring expense would truly cost you $250,000 over a 40-year working life (7% annual return).

Check every transaction in your bank and credit card statements every month.  Cancel any recurring transactions that did not bring you joy.  Did your cable TV subscription bring you joy?  How about that wine of the month?  That unused membership?  The insurance protection on your phone or chair?  The overpriced club?  That coffee/lunch each day?  Beware, because these transactions could hit you once a day, once a month, or even once per year, so it’s even more important to keep a close eye on them. 

Don’t become complacent and let “a few dollars here and there” every day or every month become a drain on your finances.  Cancel any recurring expenses that aren’t truly “holy” and bring you great joy!

COMMANDMENT IV. Honor and respect thy body

Translation: Taking care of your body is taking care of your finances.  And vice versa.

I think it was Buddha that said that “To keep the body in good health is a duty… otherwise we shall not be able to keep our mind strong and clear,” but since 50% of quotes are made up and the other 50% are misattributed, we’ll just give him credit on this one and move along.

There is no question that your physical and financial health can go hand and hand.  Those who take care of their body are better able to take care of their pocketbook, and vice versa.  There’s very little point in pursuing financial independence if you’ve sacrificed your body in the process.  And by “body” I don’t mean just mean trying to look like Brad Pitt or Jessica Alba; I mean the impact that things like stress, overworking, addiction, and fatigue can have on both your body and your mind.

We’ve already seen that exercise is literally like paying yourself $2,500 per year and that reductions of certain foods can add up to $10,000’s over one’s lifetime.

You’ll never regret time spent taking care of your health, and its impact on your happiness and bank account is immeasurable.

V. Blessed art thy savings; Cursed art thy debts

Translation: Saving for your future and freeing yourself from debt will allow you to live a happier and more fulfilling life.

Let’s begin this exercise by listing all the things you may have gone into debt for in your lifetime: A mortgage on a house?  A new car?  A business?  An education?  An unexpected health expense?  A shiny new phone or gadget?  Put these the debt itself next to the “thing” that it bought.  Now list which of those things you value the most today, starting with the most important and ending with the least important (what you most regret).

I’ll best most people put things like an education (for a subject in a high-demand field) and house near the top, the business and healthcare in the middle, and the junk they bought with their credit card or personal loan near the bottom (if they can even remember a fraction of everything).  This ties into one of our recurring themes of this blog regarding debt: Never go into debt for something that loses value over time. 

A house and an education won’t lose value over time.  A brand new car will.  A restaurant meal, a movie ticket, or a night out at the bar will – immediately.  If you can’t afford it in cash and if it’s going to become worthless over time, never ever go into debt to buy it.

Take a moment to think of a few things that you saved for and were able to pay for without debt.  Take another moment to consider the things you didn’t save for but instead purchased with debt.  Which ones brought you more joy?  Which brought you anxiety?

Things you save for diligently almost always bring you more long-term happiness than those you buy impulsively.

VI. Improve thy good habits and remove thy bad habits, one at a time

Translation: Improve your behaviors by building a routine that become a habit.  Focus on one small, easily achievable task at a time, and watch the benefits start to add up.

As I’ve mentioned before, I used to hate exercising.  Ugh.  There was always an excuse: too hot, too cold, too rainy, too far away (the gym), too painful, too tired.  I was young and in good health and couldn’t find a way to get into the habit.

I started studying why this is and learned some very effective ways of building good habits that stick.  It begins by making something a “routine” – a behavior that you have to think about, but that you do at the same time every day or week until it feels normal.  For me, that was the routine of walking for as long as I could at lunch.  Make the routine as easy and manageable as possible, then increase the time/effort you put into the routine slowly until you have more sustained benefits.  In time, this routine becomes a “habit” – something that you do without even thinking about it.  I now don’t even think about whether to go for a walk every day, I just do it, and my body feels weird without the walk. 

This methodology can apply to any area of your life where you feel like you’re not at your best.  Start by switching your routine, do it until it feels normal, and improve upon it until it becomes a habit.  Try one of the following, then add another:

—Walk 10 minutes a day at the same time, then gradually make it 30 minutes per day. 

—Stop buying just one type of “guilty pleasure” food at the grocery store, then gradually eliminate the rest. 

—Drink one large glass of water in the morning, then gradually drink one every hour for eight hours. 

—Throw one cigarette away from the pack you smoke each day, then two, then all of them.  (NOTE: Addictions may require specialized action, so make a plan with your doctor)

—Give up a time-waster like social media site first thing in the morning, then until noon, then all day (but never stop reading the Centsei!). 

—Do a 15-minute jog in place once per week, then gradually make it a daily routine or add in a 15-minute weight routine.

Focusing on one at a time is absolutely the way to go.  One minor change to your routine is infinitely more likely to become a habit than multiple major changes.  For me, I tried to go from no exercise to “three days a week for an hour at the gym” and my body quickly punished me for it until I lost motivation.  I started by just walking, added an easy weight routine after a few months, added one day per week at the gym after that (same day of the week at the same time), and am now up to two days per week – while not giving up the walks or weights.  Find ways to give yourself a positive feedback loop, and the habit will stick even harder.  It’s magical!

Interested in learning even more?  Check out The Power Of Habit at your local library!

VII. Thou shalt not covet thy neighbor’s goods, for there is no greater “status” than financial independence

Translation: Humans are programmed to seek status among their peers and often do so by spending money on status symbols.  Break free from these social cues.  The only status that matters is financial freedom.

We’ve all been there.  A classmate gets a sweet new iPhone and shows it off to everyone.  A friend gets a brand-new wardrobe with all the latest fashion.  A neighbor remodels their kitchen with high-end appliances.  An acquaintance gets “fancy” hair extensions, jewelry, or watches.  A family member takes a weeks-long vacation to some exotic destination.  A coworker buys a new car with fancy rims and leather interior.  It can be difficult to see other people buying nice things (seemingly) with ease and equally difficult to avoid the temptation to one-up them.

The fact is, however, the average person is really bad with money.  Half of Americans (about 61%) don’t have enough cash to cover a $1,000 emergency.  About a third don’t have a dime saved for retirement.  The average household has $8,000 in credit card debt, and 35% have some sort of collections reported on their credit history.  If that weren’t enough, more people are more concerned about paying for their next vacation than they are saving for retirement.  An astounding 20% of people making $100,000 per year are living paycheck to paycheck, according to a recent article.  Yikes!

Yet, these are the same people showing off their iPhone, flaunting their wardrobe, and flashing their new car.  The next time you feel that twinge of jealousy, remember that it’s much more likely that the person in question is spending beyond his means and has next to nothing in savings.  As that last article shows, people are poor financial decision-makers at all income levels, but this doesn’t mean you have to be as well.

Material possessions are no sign of status.  The only status worth having is ownership of your time and the freedom to do only the things you find meaningful.  This status is only truly accomplished when you’ve achieved financial stability and the peace of mind of being able to pay the bills and any unexpected expenses without taking on debt.  Such stability puts you on a path towards saving enough to cover all your core expenses for the rest of your life, of what I and many others call “financial independence.”  It isn’t something out of a self-help book; it is a very real position that you can put yourself in by keeping your spending low and your savings high.

This isn’t to say that you can’t enjoy a night out, a new suit, or a fancy gadget from time to time.  Rather, avoid all spending done to keep up with your peers.  Spend your money based on what you value, not what your peers value.

Be patient, keep saving, and imagine your fancy-car-coworker’s reaction when you no longer have to work by age 50 (or sooner)… and he’s still decades away.

VIII. Learn from thy past, appreciate thy present, and plan for thy future

Translation: Learn from the past, but don’t dwell on it.  Live in the present, but don’t lose yourself in it.  Plan the future, but don’t depend on it.

Ancient philosophers and modern thinkers (including bloggers!) each seem to have different thoughts on the extent to which humans should focus on the past present and future.  Let’s look at some examples.

Historians look deeply at the past and try to connect it to current events.  This is a useful exercise, as history can repeat itself, though not an easy one, as the world often evolves at a faster rate than textbooks.

Buddhists focus on the present and finding peace in the current moment.  This, too, has great value, as we often lose sight of the present and don’t always appreciate the many things that make the current moments in our lives so special.  However, too much emphasis on the present can cause us to lose sight of major problems right in front of us or behind us, so it does pay to reflect on non-current moments too.

Economists concentrate on predicting the future using data and analytics.  These predictions can have great value in helping people, businesses, and governments plan the correct course of action, but there is a reason they call it “the dismal science” – they’re often wrong.

Here at TheCentsei, we recommend a balance in all these things from the perspective of your finances and happiness.  Keep learning new things and sharpening your skills.  Take the time to examine the past to figure out what went well and what didn’t… but don’t beat yourself up if things weren’t perfect, just do it differently in the future. Continuous learning is the ally of success.

IX. Thou shalt not hold thy financial goals in vein

Translation: Goals give our behavior meaning and keep us on the right track.

As you may recall, I moved back home after graduating from school in 2009 with a mountain of student debt and no job.  Being in your 20’s and living in your mother’s basement (or the first floor, in my case) can take its toll on your ego, and I knew it was on me to improve my situation.  So from the very beginning, I set myself on the path of paying off my student loans and finding a place to live in 18 months.  This was my goal.

I settled for a temp job that became a full time “intro level” job 3 months later because they were pleased with my performance (well, and I forced my company’s hand because I’d continued to job search and got another offer).  For the next year or more, I saved 70% of my after tax income, paid off my student loans, and saved enough for a down payment on an apartment and a car.  The remaining 30% was spent paying my mother rent and for gas/insurance on my old jalopy.  Virtually no nights out at the bar, no vacations, no video games, no new clothes, no status symbols.  I knew exactly how much I had to save each month to make my goal a reality.  This was my behavior.

In the end, the goal took 20 months to achieve, not 18, but it kept me entirely focused and genuinely happy about my life at the time.  Saving was legitimately fun because I could see the goal at the end of the tunnel, and I felt progress every month.  I spent more time with my friends, my family, and our new dog doing things that were not financially draining.  What might have seemed like an unfortunate situation to others proved to be a blessing.

The point here is just that having a goal brings value to our behavior.  The slight “let down” I might feel by sacrificing a night out at the bar is “made up” by a factor of 10 when I stepped into that apartment debt-free with a bright future on the horizon.  With no goal, I likely would have drained my bank account by pouncing on each opportunity to spending money without thought for the future.

From time to time, write down your financial goals and create an attainable plan for how exactly you can achieve it.  Do you want to pay off your debt?  Buy a home?  Go back to school for a degree?  Start a business?  Retire early?  From there, pick one and go get it!

Estimate how much this goal will cost and how quickly you’d like to achieve it.  Figure out how much you have and how much you need to make it happen.  Think about what (if any) sacrifices you’ll might to make to get there in a time frame that works for you.  Consider all options and set out on the one that suits you the best.  You’ll find it so much easier to pass on other spending when you have a goal in mind.

Once you complete the first goal, get started on the next.

Personal finance is as much about behavior as it is about numbers.  Giving your money a purpose gives your behavior a meaning.  With a purpose and a plan, you can accomplish anything.

X. Thou can

Translation: Nothing is more important to your financial success than a positive mindset.

You must believe that you can succeed.  It can be easy to give up trying to master your finances and decide it’s too complicated.  The only way to get past that is to believe in yourself. At that moment, you will begin to begin to prosper.

This blog is about how to live richly without spending a lot of money and how to become wealthy both in mind, spirit, and wallet without sacrificing your integrity. 

The requirement to get there isn’t being a math wizard, finance major, millionaire, or trust fund baby.  Indeed, personal finance doesn’t require a large salary, a prestigious education, or even a perfect past.

“It’s never too late to be what you might have been.” 

– George Eliot

“The man who moves a mountain begins by carrying away small stones.”

– Confucius

“Optimism is the faith that leads to achievement.”

– Helen Keller

Rather, the only requirement is the mindset that you can do it!  The rest is just learning how money (and your own brain) works and applying that knowledge to your situation to establish the right behavior.  Anyone who believes in themselves can begin making improvements in their life.

Study, after study, after study, after study shows the power of positive thinking.  Having the so called can-do attitude and willing to keep improving your skills not only affects your finances, but also bolsters your happiness and lengthens your life!

No, I’m no cultist or motivational speaker.  Yes, I am a scientist that believes in data, especially when it reflects my own experiences.

You can.  You will!