Core Financial Ideas

(An abbreviated version of some of this can be found at Three Big Ideas.)



There are many reasons we should consider giving to others, including as an expression of thankfulness for what we have been given. It is easy to find others around us in greater need than ourselves. If you want more reasons, check out this.

Start Early

The mathematics of compounding (interest or dividends) is what makes savings and investing "work". It is the exponential function in action and the sooner you get on the curve, the sooner it starts going up. Some links to expand on this: link1, link2, link3 link4. As you read more about this, keep in mind that one of the reasons to start early and see that growth is to equip you to participate in the last point: giving.

Emergency Fund

By definition, emergencies are unexpected. But that doesn't mean that you can not prepare for such an event. It is strongly recommended to have a specific bank account with enough cash to fund 3 to 6 months (some suggest 9 or 12, depending on if you are self-employed) of your typical expenses. Start saving for this yesterday and maintain it. It can be a savings account at an online bank such as or others that can be found at More information.

Differentiate between Wants and Needs

An important lesson to learn (early, if possible) is the difference between wants and needs. It is not that we have to be an ascetic or be austere; we can certainly have indulgences. But, learn the difference so that you can make rational decisions about purchases. There are very few things that we actually need. In the physical realm, Paul wrote "But if we have food and clothing, we will be content with that." Again, don't go overboard (in either direction).

Live Simply

While related to the previous point, this is wider and can be more philosophical. The basic practice to employ is to ask if your life is fuller if you purchase the item in mind or retain the object that you currently have. The more things that you have, the more your things need your attention (time and money). There are numerous benefits to choose a more simple life. Here are some links to explore: link1, link2, link3.

Avoid All Your Eggs in One Basket

This metaphor applies in a number of directions. Many (former) employees at Enron understand what I am talking about. Don't put most of your assets in one stock, mutual fund, ETF, stock capitalization, asset class, bond rating, taxable account: DIVERSIFY. You can google "asset allocation" or "diversification" and find many articles. Here are a few links: link1, link2

Choose Low Cost Funds

Nothing is worse than learning that you have been paying an unnecessary fee in your investment accounts. Before investing, make sure you understand the costs that are involved since there is no such thing as a free lunch. Ask about load charges (avoid these - only use no-load funds), 12b-1 charges (avoid), and fund expenses. Every fund charges something, but if you have a choice between 0.1% and 1.0%, the location of that decimal is extremely important. The latter will cost you about 12 times the amount of the former. Here is a good place to learn more about using low-cost strategies: the king of low-cost funds. This place, Vanguard, is also the place where the index fund was made popular, a natural instrument to expect a low-expense ratio.

Avoid Loans for Depreciating Items

The basic idea here is to try to only borrow money for items that appreciate, which may include things like real estate, education, a business, or similar items. This would exclude a car, vacation, boat, motorcycle, and so on. See the wants/needs dichotomy above, which is related. While it may be difficult to save enough in the beginning to purchase a car from savings, it is still a goal that you should be able to achieve for your next car. Or alternatively, simply purchase the car that you can afford with cash. A new (or used) car loses significant value in the first 5 seconds of ownership. On average, a car loses 19% of its value in the first year of ownership.

Employ Three accounts

As you consider retirement in the (distant?) future, it is best to work on filling three separate types of accounts:

  1. Pre-tax funds such as ordinary 401(k) or 403(b) accounts via an employer or a traditional IRA. These are funded with dollars that have not YET been taxed. These accounts grow on a tax-deferred basis. You DO pay taxes eventually, when you make withdrawals.
  2. Roth funds, such as a Roth version of 401(k) or 403(b) accounts or a Roth IRA. These are funded with after-tax dollars but grow tax-free and can have tax-free withdrawals (typically after age 59 1/2).
  3. Taxable accounts that contain stocks, mutual funds, or ETFs are accounts that are funded with after-tax dollars and the growth is also taxed as it is realized.

Each of these accounts have roles in the bigger picture of each person's financial life and trying to have relatively equal amounts in each will give you the greatest flexibility. Most people tend to be overweighted with the pre-tax bucket. Each bucket has its advantages and disadvantages and it is worth understanding these. Also, depending on your goals for these accounts, you will likely want significantly different types of assets in each. (For example, bonds or assets that produce income may be best in pre-tax, growth assets may be best in Roth, and tax-efficient assets are best in the taxable accounts.) More info.

Credit Card Use - Only As a Cash Substitute

A credit card in itself is neither good nor bad: it all depends on you use it (or it uses you). The two key things to keep in mind when using credit cards are:

  1. Use the credit card only as a convenience and use it only if you have the actual cash to purchase your item (on hand and later at bill payment time).
  2. ALWAYS pay off the credit card payment in FULL.

The second point is easy if you comply with the first point about automating, but if you fail with either, there will be large regrets and it can easily lead to a downward spiral of debt.

One site to visit that covers some of the topics discussed here is Here you will find many calculators, resources, and other valuable tips and links. Another general site, at Boston College, is worth visiting.

Last updated: 2022-01-23