Got to Believe

Jonathan Clements

AS I’VE BUILT OUT HumbleDollar over the past few years, I’ve come to view the site not merely as a place where folks can learn about financial issues, but as a community that thinks about money in a unique way.

This shows up repeatedly in articles from guest contributors, with their focus on topics like spending thoughtfully, helping family, behavioral finance, indexing and achieving financial freedom. It’s a community where folks are trying to be rational about money, but are also acutely aware of the human dimension.

That got me thinking that HumbleDollar ought to have a manifesto—key principles that should govern how we use and think about money. Last week, I added Manifesto as a regular feature on the site’s homepage. Here are a dozen initial principles—with more to be published on the homepage in the months ahead:

  1. Our financial life involves endless tradeoffs. We usually have a good idea of what our dollars are buying us. But to be good stewards of our wealth, we should also ponder what we’re giving up.
  2. It takes years to achieve full financial freedom. But we can quickly escape much financial worry—if we live beneath our means, pay off credit card debt and build a cash cushion.
  3. Good savings habits are the greatest of the financial virtues. If we aren’t good savers, it’s all but impossible to grow wealthy. What if we are? We’ll likely prosper, even if we’re mediocre investors.
  4. We should focus relentlessly on what we want from our financial life. That’ll motivate us to save, drive our investment strategy—and help ensure we pursue the goals we care about most.
  5. Retirement may be our final financial goal, but we should always put it first. Why? It’s easily our most expensive goal, so it takes decades of savings and investment gains to amass enough.
  6. We spend too much time fretting over our investments—where there’s limited room to add value—and too little on other financial issues, like taxes, insurance and estate planning.
  7. Paying down debt may not be our best investment, but it’s almost never a bad idea. It reduces our life’s financial risk—and earns us a rate of return equal to the debt’s interest rate.
  8. Very few of us need life insurance for our entire life. That’s why term insurance makes sense and cash-value policies are usually a mistake—despite what insurance agents say.
  9. Investing is best when it is simplest. If we own costly, complicated products, we’re filling Wall Street’s coffers—at our own expense. Don’t understand an investment? Don’t buy it.
  10. Our odds of beating the market averages over a lifetime of investing are so small they’re hardly worth considering. Overconfident investors insist on trying. Rational investors index.
  11. Our goal shouldn’t be more time to relax, but rather more time to pursue our passions. Working hard at things we care deeply about is among life’s greatest pleasures.
  12. Frugality isn’t just the key to financial success. It’s also no great sacrifice, because spending often brings only fleeting happiness—and sometimes even pangs of regret.

Follow Jonathan on Twitter @ClementsMoney and on Facebook.

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