ONE OF MY FAVORITE musicians is singer and songwriter Neil Young, who has sold millions of records since the 1960s. Young was rated No. 17 by Rolling Stone on its list of 100 greatest guitarists. He was inducted into the Rock and Roll Hall of Fame twice: once as a solo artist in 1995 and as a member of Buffalo Springfield in 1997.
When I was in college in the early 1970s, I would often hear students strumming their guitars to his songs as I walked across campus. Young’s music is relatively simple to play. Some of his songs, such as his popular hit single “Heart of Gold,” are recommended for beginner guitar players. One song, “Love Is a Rose,” only has three guitar chords. As Willie Nelson once said, all you need for a good song are “three chords and the truth.”
The same thing can be said about money. To have a successful financial life, you only need a few well-known financial chords and the truth. These can be summarized by everyday sayings we’ve all heard over the years. Anyone can learn these principles, just as any aspiring guitar player can learn “Heart of Gold.”
What are the three financial chords?
“Money doesn’t grow on trees.” There isn’t an endless supply of money. Your income is limited. Result: You need to keep your fixed expenses low and live within your means.
“The best things in life are free.” You don’t have to spend money on material goods to have a happy life. A quiet dinner with friends or family can be a wonderful, memorable event. Saving money and being happy aren’t mutually exclusive.
“Don’t put all your eggs in one basket.” Asset allocation—how you divide your funds among stocks, bonds and cash—is a major determining factor in building wealth. A simple all-inclusive financial holding, such as a target-date fund, can be sufficient.
And what’s the truth? It can be summed up in two phrases.
“If it sounds too good to be true, it almost certainly is.” Don’t be a victim of fraud, identity theft and imposter scam. Protect your Social Security number and other vital personal information. Practice these safeguards:
“This isn’t rocket science.” To have a secure financial future, you don’t need to go to school and learn the rule of 72, what standard deviation is or how to calculate the present value of an asset. You don’t need to be like Warren Buffett. You just need to be like Neil Young, and keep it simple and easy. If you practice these three basic financial chords and know the truth, your financial life will be a hit.
Dennis Friedman retired at age 58 from Boeing Aerospace Company. He enjoys reading and writing about personal finance. His previous articles include First Impressions, Family Inc. and Creative Destruction. Follow Dennis on Twitter @dmfrie.