The 10 Commandments of Personal Finance

Rabbi Avigdor Miller ztl’s “Ten Commandments of Marriage” 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 with regard to other topics as well.  Each commandment alludes to myriad details which are more easily studied when categorized in a focused grouping.  What are the big-picture financial rules that most other details flow from?  Here’s my modest attempt at listing the most important commandments of personal finance.  Let me know if you’d have a different list of the top 10.

1. Maximize your biggest asset

The Amora R’ 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 mostly focused 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, if you don’t save, you can’t become wealthy.  Some top earners are big spenders with empty bank accounts, while others with modest salaries manage to accumulate great wealth.  It’s all about consistent saving and investing.  The same $10,000 invested at 8% grows to $22,000 over 10 years versus $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 wealthy 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 trade-off 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, a state which is exceedingly difficult to emerge from.  The Gemara’s timeless investment advice is to always balance and diversify (“Lolam 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.  And 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, 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 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.   And leaving one’s family to chance by ignoring term life insurance is thoughtless, perhaps even a bit cruel (assuming there are no halachic guidance discouraging it).  The cost of insurance against catastrophic losses is relatively small when compared to the amount of peace of mind and stability it brings.

9. Get reliable help

As needed, get help from knowledgeable and ethical financial professionals.  While technology has made things much simpler and more transparent today, certain situations still call for an expert.  For example, most people will need assistance at some point 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.

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