smart spending

Ten Commandments of personal finance

When Moses brought the stone tablets bearing the Ten Commandments down from Mount Sinai, he was trying to straighten out the world.

Here at Bankrate, we have a less ambitious -- but still very important -- goal in mind. We're trying to straighten out your finances with our version of the Ten Commandments of personal finance.

"Think of these Ten Financial Commandments as your guidelines," says Sean Sebold, Certified Financial Planner and president of Sebold Capital Management in Naperville, Ill. "If you follow these guidelines, you should be able to create a plan that works for you."

Adds Kristi Sweeney, Certified Financial Planner and principal of Sweeney Associates, Greenwood Village, Colo., "Too many people are in debt today. Most people are struggling to pay their mortgage or their health insurance. These Ten Financial Commandments should provide some insight as to the steps you can take to create a better financial life for you and your family."

Ten Commandments of personal finance
  1. Thou shalt create a savings plan
  2. Thou shalt not spend more than you make
  3. Thou shalt not try to keep up with the joneses
  4. Thou shalt limit the amount of debt on credit cards
  5. Thou shalt pay monthly bills on time
  6. Thou shalt avoid get-rich-quick schemes
  7. Thou shalt protect thyself against risk
  8. Thou shalt teach your children to handle money wisely
  9. Thou shalt plan for retirement
  10. Thou shalt legally protect thyself and thy family

I. Thou shalt create a savings plan

Without a savings plan you won't reach the goals you'd like to achieve.

"Two dollars a month is not going to help you get there," says Sebold.

He recommends you create a savings plan with 20 percent of your income. In fact, he helps his clients create a 24 percent solution. That means, they save 20 percent of their income and only spend 4 percent of their invested assets.

Sweeney has a slightly different outlook. First, she believes besides a savings plan people need an emergency fund.

"What if you need a new refrigerator because yours can't be fixed? Have an emergency fund so you don't need to put the purchase on your credit card."

She suggests that a three- to six-month emergency fund should be established. In addition, Sweeney recommends that you create a savings plan in either an IRA, 401(k), Roth IRA or even a CD.

II. Thou shalt not spend more than you make

Sweeney notes that when you're in debt, it is very difficult to get out of debt. People who spend too much are in danger of going into bankruptcy.

To help people avoid this problem, one of the steps that the Financial Planning Association in Colorado takes is to work with www.Americasaves.org. This national organization, comprised of more than 1,000 nonprofit, government and corporate groups, encourages individuals and families to become savers rather than spenders to build personal wealth.

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III. Thou shalt not try to keep up with the Joneses

Look around you, Sweeney suggests. There are so many enticing items to buy. Your neighbors have them. So do some of the people where you work. You don't want to look cheap. You deserve the American dream.

"Buy things for you and not because these items impress your neighbor or friends," Sebold says. "Don't give into your children who say, 'I have to have it because everyone is wearing it.' If you can't afford it, don't buy it."

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