We all want money — some of us dangerously so. Thankfully, there are simple and powerful ways to get rich without gambling your hard-earned savings.
For sure, they won’t all just stick in your brain. And many will change over time as Uncle Sam reforms our taxes and benefits, and as new and better financial products come on board. Still, having guiding principles at hand can help you manage your money and achieve financial security.
As an economist, here are the top 21 money rules that I live by and teach:
1. Don’t borrow for college. It’s far too risky and expensive. I don’t say this lightly. I’m a college professor. But you can get a fine education without mortgaging your future and potentially dashing your career plans.
It simply involves pursuing scholarships and applying to less expensive, if generally less prestigious, institutions.
2. If your parents are borrowing for your tuition, discuss who will repay. And consider whether they’re blowing your inheritance or sacrificing their welfare by “helping” you attend an unaffordable college.
3. Strive to own your home, not rent — and try to buy in cash. This is particularly the case if you’re a moderate to high earner. Having more of your money packed in your home is a way to shelter it from federal and state asset-income taxation.
4. Mortgages are tax and financial losers. Pay them off ASAP. Think about it: If you have $100,000 that you can invest right now in a bond earning 1.5%, you’d have $1,500 in interest income over the course of a year. But if you had a $100,000 debt at a 3.2% interest that you could pay off right now, you’d save $3,200 over the course of the year in interest payments.
On balance, you’d make $1,700 with no risk by investing in debt repayment rather than investing in the bond.
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5. Owning a home can reduce longevity risk. Here’s another reason it’s better to own instead of rent. Let’s say you’re 70 and have found your dream location. Renting for the rest of your life runs the risk of rent hikes without the possibility of your fixed income increasing.
In contrast, if you owned your home, home prices can soar or collapse, but you’ll be insulated. Since you are neither buying nor selling your home, who cares what the housing market does? Your housing consumption is guaranteed through the end of your days.
6. Your perfect home may be far cheaper several time zones away. Or it may be someplace with no state income tax, no state …….