Defenestrating Thoughts from the Bivouac

I came across this great writeup about the 10 Immutable Laws of Money. It’s worth reading the whole thing, but really there are just two simple rules that really matter.

Spend Less Than You Make

Whether you say, “Live within your means” or “Pay yourself first” (i.e. savings first), the meaning is the same: you need to spend less than you make. No one got rich by going into debt. You get rich by saving and investing wisely.

Wants Always Exceed Needs

Understanding that wants always exceed needs is the key to get spending under control. There’s very little that you need; you need food, shelter, and water.

Beyond that you get into the wants. You don’t really need a BMW, you want one. You don’t need a week long vacation in Europe, you want one.

Another trap here is tying “material goods” into self-esteem. Lots of people will say, “I need to buy this (big TV, big car, etc) so that my friends don’t think I’m poor.” I think in this case what you need is new friends!

The rest of rules are just rephrasing these two core tools. For example, when you buy a house, conventional wisdom says, “You should buy the biggest house you can afford.” That’s patently untrue.

Homes aren’t investments, they are places for you to live. Historically home prices track inflation, so any appreciation you have in your home is not real in terms of spending power. You’d be better off buying the house you need and investing the leftover money in assets that appreciate faster than inflation.