Thursday, February 21, 2008

Financial Rules for Life

For my final piece in my financial series, I will recap some of the points that have been seeded throughout the series. Financial peace of mind doesn’t require a great deal of money. It can be had by anyone willing to follow a few simple rules. Some of these rules include:

  • -Live within your means. If you can’t afford something you want, do with less or do without. It doesn’t matter how much you want it if you can’t afford it.
  • -If you want something, work for it. Do what it takes to get it honestly.
  • -Understand the difference between your own money and other people’s money. Understand that you generally have no claim on others’ property.
  • -Be brutally honest in distinguishing between needs and wants.
  • -Do not go into debt for wants.
  • -If you must incur debt for long-term needs — housing, productive transportation or education — obligate yourself only to that which you can comfortably afford.
  • -Always pay your obligations on time.
  • -If you unexpectedly get into financial trouble, work with your creditors.
  • -If something sounds too good to be true, it probably is. Be wary of schemes that offer unrealistic returns.
  • -Be trustworthy, but keep your eyes wide open when it comes to trusting others. Not everyone has pure motives.

There is a parallel between how the people of our nation regard and handle their personal finances and how the nation handles its finances. Most of the rules listed above for financial peace and security apply to government as well as they apply to individuals.

One of the major problems in this nation is that our politicians don’t understand the difference between YM and OPM. And while we elect them to spend other people’s money, they lack restraint in spending it because few incentives for fiscal responsibility exist. Former Rep. Dick Armey (R-TX) correctly said, “Three groups spend other people's money: children, thieves, and politicians. All three need supervision.”

Nor do our politicians have a good track record of grasping the difference between wants and needs. This should not be surprising, because much of the electorate seems to lack this understanding as well. Activist groups and lobbyists make everything sound like a need. And all too often, we go along with it.

Programs expand and new programs flare up constantly, frequently under the radar of the electorate. All are well meant. But seldom do we stop to ponder whether they fall within the actual constitutional mandate or whether they are truly needed. We have entire programs that obligate future generations to pay for our consumption of services today.

Financial peace of mind is possible both in our individual lives and within our government entities. All it requires is obeying simple rules. It takes acceptance of financial realities. Each of us has the power to make this real in our own lives. It would take a great deal of concentrated efforts by many Americans to make this a reality in our government. It sounds impossible, but we’ll never get there if we don’t start.

Past posts in this series:
Money Attitudes
YM and OPM
Repo Man
Our First House
The Tax Auditor
The Fiddler Must be Paid


Anonymous said...

"Nor do our politicians have a good track record of grasping the difference between wants and needs."

Politically nobody cares if it's a want or a need - they just try to paint it as a right.

Remember "that all men are endowed by their creator with certain unalienable rights, that among these are life, health care, social security, and the pursuit of happiness." (or something like that)

Scott Hinrichs said...

Indeed, we abridge the right to pursue happiness when we arrogate to ourselves (or to others in the name of charity) the property that rightfully belongs to someone else. The communal view is that, since no one accumulates anything without benefiting from society at large, all property is essentially community property. Thus, in this view, the 'community' has the right to use all property as it sees fit.

But the right to control property is also the right to control lives -- to control how people can choose to live. That means that it is the right to control pursuit of happiness. Well, some will claim, it is not possible for one to pursue life and happiness without adequate health care. This in no way excuses infringing on someone else's right to life and the pursuit of happiness.

Societies that recognize what Hayek calls several property rights maximize freedom and happiness for all. Societies that recognize mainly communal property ensure poverty and control for everyone.