Save and Invest

Follow these 5 money rules while you're still young—or 'regret it later in life,' says finance expert

(Photo: Twenty20 | Sasha Baker)

Personal finance hacks are not easy because shortcuts rarely exist. Rewards take time and effort. The personal finance industry — filled with advice that sounds and feels good, but doesn't actually move the needle — needs to recognize this.

As a partner at a venture capital firm who has spent much of his career studying and writing about behavioral finance, I've found that the sooner you follow the money rules below, the bigger the payoff will be. (It won't be easy, but ignoring them may lead to regrets later in life.)

1. Accept that living below your means requires suppressing your ego to below your income.

Spending a certain level beyond your basic needs is mostly a result of ego and social climbing. So savings is just a diversion from boosting the appearance of your status today for more productive use tomorrow. 

People with enduring personal finance success [...] tend to have a propensity to not give a damn what others think about them.

When you define savings as the gap between your ego and your income, you realize why many people with decent incomes save so little. It's a daily struggle against instincts to extend your peacock feathers to their outermost limits and keep up with others doing the same.

People with enduring personal finance success — not necessarily those with high incomes — tend to have a propensity to not give a damn what others think about them. This is the most underrated finance skill.

2. Don't commit to a relationship with someone who doesn't see eye-to-eye on spending.

The fastest way to break your finances is to marry someone with wildly different spending expectations. Two people who spend a lot is probably safer than one saver and one spender, since money disputes are a leading cause of divorce.

A related personal finance hack: Don't get divorced.

3. Avoid trouble to begin with.

Charlie Munger, vice chairman of Berkshire Hathaway, once said: "Nobody survives open heart surgery better than the guy who didn't need the procedure in the first place." A corollary: No one gets out of debt faster than the person who avoided it to begin with.

...you don't need to make many great decisions to do well over time; you just have to consistently not blow it for long periods of time.

Count how many programs there are to consolidate and manage student loans compared to those encouraging strategies to get a degree without debt — 100 to one, at least. The same applies with investing: Part of why "get-rich" schemes are popular is because so many people need to get rich fast, after delaying savings for too long.

An underappreciated truth in finance is that you don't need to make many great decisions to do well over time; you just have to consistently not blow it for long periods of time.

4. Utilize low-status, high-efficiency services.

A few of the biggest examples: Community college for general education requirements, in-state tuition and public libraries.

5. Pick a career that may not be your passion, but pays a decent wage.

Comedian Chris Rock's advice for kids is great: "You can't be anything want; you can be anything you're good at, as long as they're hiring." MBA professor Scott Galloway's advice is also great: "People who tell you to follow your passion are already rich."

It's an unpopular message, but a career that isn't your passion, yet earns a good income, can be preferable to the alternative. This is less about money and more about freedom. A low-income passion job may breed resentment as you get older and have kids, mortgages and all kinds of higher bills that become burdens large enough to suffocate the joy you get from working in your passion

A job you merely like that pays a decent salary (provided you live below your means a save a chunk of that income), however, can eventually offer a level of financial flexibility that lets you pursue passions as hobbies purely for their pleasure.

Morgan Housel is a partner at The Collaborative Fund, behavioral finance expert, and former columnist at The Wall Street Journal and The Motley Fool. He is also also the author of the upcoming book "The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness."

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