Ten Commandments of Personal Finance

We revisit ancient views of money on ten central tenets of personal finance from timeworn texts and stories. Surveying these words adds a different perspective on finances whether you are celebrating the upcoming holidays or not. There is a common thread across varying beliefs on handling money, saving, overspending, debt accumulation, and investing.

Ten Commandments of Personal Finance:

 

1. Financial Planning

A financial plan is essential to achieve your short-term and long-term goals. According to Proverbs 21:15, “The plans of the diligent lead to profit as surely haste leads to poverty.”

Understanding your priorities is an essential first step. With hard work, you can accomplish what you want so long as you know your preferences. Our goals are not always clear to us, especially when we are young. “Complete your outdoor work in order and prepare your field; after that, you may build your house.” (Proverbs 24:12).

Making a plan doesn’t happen overnight. Set reasonable priorities incrementally as you engage in deep thought and conversations with your partner. It is often hard to address many features of a sound financial plan on your own. Reduce some of the risks upfront, whether you are investing in stocks or starting a business.

 One of my favorite books, Richest Man In Babylon by George S. Clason provides some guidance. “Gold slippeth away from the man who invest it in businesses or purposes with which he is not familiar or which are not approved by those skilled in its keep.” Avoid recklessness when investing.

Consult A Fiduciary

Consider a financial advisor who as a fiduciary must act in your best interests rather than his or her own. Such an adviser can provide a framework to help you with your goals for retirement saving, investing and estate planning. “For by wise guidance you can wage your war. And in the abundance of counselors there is victory.” (Proverbs 24:6).

2. Saving More, Spending Less

Saving money is an essential financial habit. According to a CareerBuilder report, 78% of American workers were living paycheck-to-paycheck. The report found almost 1 out of 10 workers making $100,000 were having trouble making ends meet. When facing a weak economy, rising job losses cause financial stresses. For those reasons, having an emergency fund is necessary to pay for at least six months of basic living expenses. Having readily accessible funds in liquid funds such as money market securities helps you avoid increasing debt.

Joseph’s Emergency Funds

Emergency funds as a prudent strategy appear in Genesis 41:34-36.

In this passage, Joseph interprets Pharaoh’s dream about seven fat cows grazing by a river swallowed up by seven skinny cows. Joseph views the seven fat cows as seven prosperous years for Egypt, followed by seven famine years. As a result of planning for this disaster, Joseph advises Pharaoh to store grain during the good years for use in more challenging years. Save when you have more for those times you have less due to job loss, illness, or crisis.

Adopting a habit of saving more provides you with more flexibility to allocate into investment and retirement savings. Begin by setting aside small amounts of savings of $1,000 but don’t stop there. Tough times prove that amount is inadequate. Don’t think of these savings as wasteful assets. Instead, it is a means to avoid higher debt levels. As Proverbs 13:11 tells us, “Dishonest money dwindles away, but whoever gathers money little by little make it grow.”

3. Track Your Spending By Budgeting

Spending more than your means is a sour recipe that leads to borrowing more. It is far more profitable to save money and allocate to investments that yield 5% returns or more than having to borrow at mid-teen rates with credit cards to pay for your overspending habits. “Whoever works his land will have plenty of bread, but he who follows worthless pursuits will have plenty of poverty.” (Proverbs 28:19).

Track your spending carefully by budgeting according to your priorities. Bava Metzia 42a instructs us, “A person should always divide his money into three: one-third in the ground (for the future), one-third (invested) in business, and one-third in possession.”

That may be an old way of splitting your funds. There are several ways to budget, such as tracking your expenses, creating a monthly budget, or using the 50/30/20 rule. The latter budget is Elizabeth Warren’s rule of thumb using 50% of aftertax or net income for your needs, 30% of net income for your wants, leaving 20% for saving money and paying the debt. Budget in any reasonable way you can control your spending. Consider these budgeting methods.

Avoid Lifestyle Inflation

Overspending leads to materialism and lifestyle inflation that is hard to maintain. Mishlei Proverbs 13:7 tells us, “There is one who feigns riches but has nothing; one who feigns poverty but has great wealth.”  According to Psalms 128:2, “You shall eat the fruit of your effort–you shall be happy, and it shall be well with you.” This proverb reminds me of another favorite book, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy by Thomas J. Stanley and William D. Danko.

Stanley and Danko profiled and compared millionaires in two categories: those under accumulators of wealth (UAW) and the prodigious accumulator of wealth (PAW). The UAWs had a low net wealth compared to their high income because of spending to maintain their status. On the other hand, PAWs managed their wealth better, often living in blue-collar neighborhoods and buying used cars. It is an eye-opening account about the good and bad money habits of the wealthy.

4. Manage Your Debt Wisely

The successful millionaires practice budgeting and bargaining. They avoid debt accumulation to lower their risks.  According to Proverbs 22:7, “The rich rule the poor and the borrower is slave to the lender.” Manage your debt wisely. Pay your bills on time and in full. Don’t carry high credit card balances. You need to pay your card balances in full, not merely the minimum, or your debt will be accumulating quickly because of compounding growth.

Managing your debt and developing good credit habits are essential in your financial life. Learn how to avoid common credit mistakes in a recent post here.

Related Post: How To Pay Down Debt For Better Financial Health

5. Retirement Savings

Start saving for retirement in your 20s through your employer’s sponsored 401K plans. Deposits in small amounts in retirement accounts regularly benefit from tax advantages and compound growth over a long horizon. Automate your tax-deferred contributions to come out of your paychecks, and employers often match a portion of your contributions. The match contribution is like extra money you can earn from your employer. Separately, you can establish an IRA (Roth IRA) for further retirement savings. Target your contributions to amounts capped by the IRS for maximum growth for retirement.

One of my favorite quotes in The Richest Man is this: “It behooves a man to make preparation for a suitable income in the days to come when he is no longer young, and to make preparations for his family should he no longer be with them to comfort and support them.” Providing insurance should be arranged for your family to cover potential risks. “We cannot afford to be without adequate protection.”

6. Diversify Investments

Allocate some of your savings into investments. Whether you have a financial adviser to guide you, manage your assets, and diversify to reduce your risks. Don’t put all your eggs in a basket unless you are using Easter eggs for a holiday hunt. Ecclesiastes 11:2 says, “Put your investments in several places-because you never know what kind of bad luck you are going to have in this world.”

The financial markets go through turbulent times. Reducing risk by diversifying your assets into stocks, bonds, real estate (including home ownership), and money market securities is the best way to weather those stormy times. Diversify within each class of investments to avoid the pitfalls. That means having some stocks with growth portfolios and those with healthy dividend yields.

Bull Market To Bear Market In Record Time And Then…

Since the beginning of the pandemic, the stock market has been volatile. We saw severe moves,  going from a bull market to a short bear market. There has been fiscal support, sending out the third stimulus checks and extending federal unemployment. 

The Fed has stimulated the economy with lower interest rates and substantial liquidity. Fears of high inflation are now on the table concerning investors. Stock investing is always challenging to predict. It is even more challenging to time the market.

Stay the course rather than jumping in and out of the market. For long-term stockholders, staying the course rather than panic selling seems to be a better path. A more robust economy will likely fuel corporate earnings growth.

7. Don’t Obsess About Money

Maintain balance in your life without a focus on just wealth accumulation. According to Proverbs 21:20, “Precious treasure and oil are in a wise man’s dwellings, but a foolish man devours it.”  While no one seeks to become poor, there are dangers of solely wanting to be rich. “Keep your lives free from the love of money and be content with what you have.” Hebrews 13:5

Rev. Martin Luther King Jr. worried about the obsession with money in his famous speech called False God of Money. He said, “We attribute to the almighty dollar an omnipotence equal to that of the eternal God of the universe. We are always on the verge of rewriting the Scriptures to read, ‘Seek ye first money and its power and all these things will be added unto you,’ or ‘Money is my light and salvation, what shall I fear.”

King himself lived frugally, leaving little money for his family. However, he saw other goals like working hard, investing in education, and having faith as critical.

8. Add Knowledge And Skills 

Become a lifelong learner adding knowledge and skills. “Wisdom is a shelter as money is shelter but the advantage of knowledge is this: wisdom preserves those who have it.” (Ecclesiastes 7:12). By investing in yourself, whether learning a skill, a language or knowledge, you grow in confidence and are valuable to others. “Lazy hands make for poverty, but diligent hands bring wealth.” Proverbs 10:4

Work hard and persevere in your job, your career, and your profession. As a result of the coronavirus and social distancing, we see many people who do not have the luxury of working from home. I speak of doctors, healthcare workers, grocery store clerks, bus drivers, and untold heroes working hard to save lives or are engaged in essential jobs.

“The Street Sweeper”

Dr. King valued those who worked hard. Another favorite King quote, “If a man is called a street sweeper, he should sweep streets even as a Michaelangelo painted, or Beethoven composed music or Shakespeare wrote poetry. He should sweep streets sp well that all the hosts of heaven and earth will pause to say, ‘Here lived a great street sweeper who did his job well.”

9. Be Ethical

We have a responsibility to be ethical to others. That means not to scam, steal, or be dishonest. Respect others’ property. Wastefulness is shameful according to the Torah and should destroy any useful objects according to Deuteronomy 20-19. Destruction is only forbidden when it is without purpose. For example, only trees that you know do not yield food may be destroyed.   We should not borrow anything without permission. According to Leviticus 5:23, “He must return the stolen article, the withheld funds, the article is left for safekeeping, the found article.”

10. Be Charitable

According to Jewish law, it is forbidden to impoverish one’s wealth by the distribution of all of one’s wealth to charity. However, one can leave one-third of his estate to charity in his or her will. A minimum of one-tenth of one’s income belongs to God per measure handed down from the Patriarchs as Jacob himself said to God, “Of all that You give, I will set aside a tenth to You” (Genesis 28:22). Give 10% of your net income per year as a desirable goal. Those who can, should.

According to HW Charles in The Money Code: Become A Millionaire With The Ancient Code, “Those who love people acquire wealth so they can give generously, after all, money feeds, shelters and clothes people.” We should strive to be as generous as possible to those in need.

Final Thoughts

Ten commandments of personal finance come from timeless scriptures. Sometimes ancient words remind us that money management was always a challenge. That said, you can learn money lessons wherever you look. Choose financial success by your actions in dealing with money. Determine your priorities and set out to accomplish them. The building doesn’t happen overnight. Many have lost jobs and the means to pay bills. It will take time to get back to normal. In the meantime, stay healthy.

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