Unifying Principles of Personal Finance

Can financial experts agree on anything?

When I saw this question posed on Forbes.com by Tim Maurer I was intrigued. Tim was calling for financial experts to agree on a list of principles that most if not all financial experts could agree on. He called it The Financial Common Ground Project. Initially 30 experts from a wide variety of specialties and four different countries answered with a resounding YES. Together, we co-authored a list of 12 Unifying Principles of Personal Finance that we hope experts and consumers alike can support and benefit from. You can view the original at www.financialcommonground.com.

Please read the list below and if you agree click HERE to join the list of those who support this initiative:

The Unifying Principles of Personal Finance

• Progress: The benchmark for success in personal financial planning is progress, not perfection.  Excellence is more a product of good habits than a revolutionary event.
   
• Discipline: A household must consistently spend less than it earns, regardless of the level of income.  The foundation of financial success is a disciplined cash flow system (such as a budget), which is designed to make household spending decisions purposefully and in advance.
   
• Debt: Debt wisely used can help build wealth, but fueling unsustainable lifestyles with borrowing is the quickest path to financial ruin.  We are well-served to pursue an eventual debt-free path.
   
• Buffer: Changes, surprises and failures are guaranteed, but their impact can be minimized through the creation of a financial buffer.  This buffer - a cushion of cash savings - will help lessen the burden of emergencies and other unexpected events.
   
• Risk: It is better to make an informed risk management decision than to act on a consequential reaction.  Many risks can be adequately managed through risk avoidance, risk reduction or self-insuring through risk assumption.  However, the potential for catastrophes from which a household could not survive financially should be transferred through insurance. 
   
• Investing: Investors have succeeded utilizing strategies on a continuum ranging from entirely passive to surprisingly active.  None succeed purposefully, however, without following a disciplined strategy.
   
• Taxes: Taxes are an important element of financial decisions, but rarely the most important. Tax minimization is wise while tax evasion is illegal.
   
• Giving: Giving of time and money is good for everyone, donors and recipients alike, and may also result in a reduction in taxes.
   
• Future: Plan for tomorrow, live for today.  Failure to plan for major expenses, such as education and retirement, is folly; but deferring all gratification for the future strips the joy from life today. 
   
• Estate: Everyone, with very few exceptions, should have well-conceived and clearly written estate planning documents including, at minimum, a will (with or without a revocable trust), a durable financial power of attorney and advance directives (including a health care power of attorney and living will).
   
• Legacy: Leaving a legacy - a relational impact on friends, family and community - is as or more important than leaving an estate - the sum of your assets less your liabilities at death.
   
• Guidance: Whether from a book, blog, article, class, radio program, TV show, advisor or specialist, financial advice is only beneficial to the degree that it is consistent with your values and goals and leads to action.