One of my favorite books to come out in recent years is Common Sense Economics: What Everyone Should Know About Wealth and Prosperity*. It’s written in easy-to-understand language (which is good for me) and utilizes lists. One chapter is titled “Twelve Key Elements of Practical Personal Finance.” Yes, if you are familiar with personal finance, you’ve probably heard them all.
1. Discover your comparative advantage.
2. Be entrepreneurial. In a market economy, people get ahead by helping others and discovering better ways of doing things.
3. Use budgeting to help you save regularly and spend your money more effectively.
4. Don’t finance anything for longer than its useful life.
5. Two ways to get more our of your money: Avoid credit-card debt and consider purchasing used items. A no-brainer. Credit card debt is a killer.
6. Begin paying into a “real-world” savings account every month.
7. Put the power of compound interest to work for you. Not a lot of interest being paid these days so let’s change this to compound growth instead of compound interest.
8. Diversify—don’t put all your eggs in on basket. I know this one gets old but if people would have heeded the advice, they wouldn’t have lost everything in the Bernie Maddoff fraud.
9. Indexed equity funds can help you bet the experts without taking excessive risk.
10. Invest in stocks for long-run objectives, but as the need for money approaches, increase the proportion of bonds.
11. Beware of investment schemes promising high returns with little or no risk.
12. Teach your children ho to earn money and spend it wisely.
My personal favorites are the first two. I think people tend to think that their lives are what they are and that there is little that they can do to change it. Unfortunately, when you have this mindset you vote for policies that enable you to stay at your current level.
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