5.28.2008

Money Rules

From 9 Money Rules to Live By

We are not a nation of money geniuses by any stretch. In fact, according to the article, a quarter of adults failed the test given to teens (almost half the teens failed and that number is growing). Women were far more likely to fail than men (42% to 15%) and men were far more likely to get an A or B (51% to 17%). What does it all mean? It means we, as a nation, need to come to grips with some financial rules to subscribe to in order to dig ourselves out of the massive consumer credit debt hole we are in.

Here's the short version, the linked article expands on all of these:
The difference between needs and wants
Scarcity makes your choices for you
The pointlessness of the hedonic treadmill
Every money decision has a cost of its own
Why supply and demand rule
Throw no good money after bad
The role risk plays
The time value of money
The miracle of compound interest

I talk about needs and wants with my dog and kids all the time. Graydon doesn't need to watch SpongeBob, he wants to. Nande doesn't need to go out every six and a half seconds, she wants to. Sully doesn't need another Otter Pop, he wants one. It is an important mindset to understand and knowing the difference between a need and a want can save you an awful lot of money.

Throwing good money after bad is an attempt to buy your way out of the hole. Sometimes money just gets spent badly, it gets wasted on materials that are consumed without a tangible product. Sometimes you just need to call the loss for the loss and move on without sinking more money into a failing or failed project. Emotional investment can often make this alot harder than it needs to be.

Now, all I need is some money to put some of these concepts into practice. Anyone with a spare million? I promise to send you a really nice thank you card.

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