The “Ten Commandments of Marriage” from Rabbi Avigdor Miller zt”l is a classic among his thousands of recordings. Just as we were given the Aseres Hadibros, which are general rules that contain all of the Torah, the Rav noted that it’s beneficial to draw up our own lists of core principles about other topics as well. Each commandment alludes to myriad details more easily studied when categorized in a focused grouping.
In the money realm, what are the big-picture financial rules from which most other details flow? Here’s my modest attempt at listing the most important commandments of personal finance. Let me know if you have a different list of the top 10.
1. Maximize Your Biggest Asset
The Amora Rav Papa attributed his wealth, at least partially, to his choice of profession as a beer manufacturer (Pesachim 113a). He maximized his earning potential and recommended that we do the same. Future earning potential is usually your biggest asset, so get the most out of it. I spoke to someone who hadn’t pursued a $15,000 raise they were clearly entitled to. Over time, that is a huge fortune to forgo! Financially, stay primarily focused on where the greatest opportunity lies— your profession.
2. Save Early and Often
This one is simple but often overlooked. No matter how much you earn, you can’t become wealthy if you don’t save. Some top earners are big spenders with empty bank accounts, while others with modest salaries accumulate great wealth. It’s all about consistent saving and investing. $10,000 invested at 8% grows to $22,000 over ten years, and $100,000 over 30 years. The earlier one begins saving and investing, the greater the compounding effect.
3. Use Debt Wisely
Borrowing to fund consumption, especially via high-interest credit cards, is one of the greatest destroyers of wealth. It’s almost impossible to get ahead when paying double-digit interest. On the other hand, loans to buy solid assets, education, and businesses generally cost far less than the large profits they generate. Leverage is powerful; use it to grow your net worth, not consume it. One of the greatest dividers between the poor and the rich is how they use debt.
4. Keep Investing Simply
Everyday investors are best off keeping things really simple. Stocks and bonds should be purchased via indexed mutual funds. The power of real estate can be tapped via owning a home, renting out additional local houses, or purchasing REIT mutual funds. More complicated doesn’t equal more opportunity, especially for those who lack significant resources for due diligence and oversight. The more complex the investment, the more likely it will blow up in the novice investor’s face.
5. Diversify Risks and Rewards
There’s a constant tradeoff between potential risks and rewards. Money in the bank may seem very secure, but it actually ensures that its owner’s wealth will stagnate and even decay from inflation. On the other hand, risking one’s wealth on just one or two investments can lead to ruin, which is exceedingly difficult to emerge from. The Gemara’s timeless investment advice is to always balance and diversify (“L’olam yashlish…”). Pursue opportunity aggressively but on an unshakable foundation of secure assets.
6. Minimize Taxes and Fees
It’s almost impossible to grow wealth when the IRS and investment managers and advisors slice 25%, 50%, or even more of profits annually. With a bit of planning and shifting, there are myriad ways (legal, of course) to avoid, defer, or at least lower taxes. Using the services of a sharp, attentive accountant is worth every penny. With a bit of study and by sticking to simple investments, it’s often possible to lower the heavy burden of fees without sacrificing returns. All that matters is net, not gross, income.
7. Don’t Lose Your Head
The wheel of fortune is always turning, and no matter how great the income or portfolio is, there will be periods of booms and busts. It’s vital to be mentally prepared to keep an even keel during these periods. Many a fortune has been lost by people who either overextended themselves euphorically or panic-sold during a sharp downturn. Money should be dealt with as rationally as possible, and no major financial decision should be taken thoughtlessly or emotionally.
8. Insure the Big Stuff
Another source of permanent financial setbacks is attempting to go cheap on basic insurance. Paying insurance premiums isn’t exciting and even borders on painful sometimes. But all it takes is one lawsuit, fire, or major medical event to wipe out a lifetime’s worth of careful saving and investing. Leaving one’s family unprotected by ignoring term life insurance is thoughtless, perhaps even a bit cruel (assuming there is no halachic guidance discouraging it). The cost of insurance against catastrophic losses is relatively small compared to the peace of mind and stability it brings.
9. Get Reliable Help
Get help from knowledgeable and ethical financial professionals as needed. While technology has made things simpler and more transparent today, certain situations still call for an expert. For example, most people will need assistance with tax planning, securing insurance, generating retirement income, estate planning, and real estate transactions. Do your homework. Get referrals and second opinions. Ask a lot of questions. Consider how different fee structures create different conflicts of interest. Trust, but verify.
10. Daven, Daven, Daven
Another Gemara (Niddah 70b) clarifies that one must engage in a lot of commerce and deal honestly to become wealthy. But doing that without praying for mercy from “the One Who the Wealth is His” is fruitless. Many gevirim have publicly marveled at how apparent it became over the years that for all their hustle and hard work, it’s all up to Him.