A Penny Saved is a Penny....

I have clear memories from my childhood of my dad at his desk on the weekend balancing the checkbook and paying bills.  I understood early on that proper money management was important, and when I got my first checking account I would do the same as my dad, sit with him at the dining room table and balance my checkbook every weekend.  If I was even just a penny off, I would go back through everything until I found the error.

I'm not quite as precise these days, ironically since I have so much more expenses and cash flow, but I am an above average manager of my personal finances (if I do say so myself).  Money management is really not something we learn in primary education, and its one of the foundations we need to be responsible, functioning adults.  Years ago my dad gave me a sheet with the following list of money 'maxims', which I have saved pinned to my bulletin board.  They are important lessons to teach our kids, and important reminders for us adults (or lessons for adults as well).  Some of them may seem abstract upon first read, but think about the concept for a minute and you will see the point (bold is added by me for emphasis):

• There is no free lunch.
• There is no free income either.
• The essentials of life are cheap. Only the luxuries are expensive.
• A bad product is always a bad deal.  Don't buy a car or appliance with a poor service record.  Don't buy a house with a cracked foundation.
• A good product can be a bad deal if the price is wrong.  How do you know a good price? Shop around and be willing to walk away from any "deal."
• The purpose of insurance is to protect against financial disaster.  Any loss that is non-financial cannot be remedied by insurance.
• Any loss that is not a disaster does not require insurance.
• Financial products are simply agreements written on paper.  Although written in English, they are written by lawyers an designed so you won't read them.  Read them anyway, and read them again and again, until you understand them.
• The price of borrowing money is interest -- and worry.  Keep all borrowing below the worry point, and don't borrow to buy things that depreciate; you will loose on both ends.
• Don't rely on appreciation of the asset.  If the price is too high, wait.  It's too high for everyone else as well, and they will realize in due time.  The public tends to extrapolate trends long after the financial justification is gone.
• Any agreement has two parties; the other person will be working for himself.  Figure out whether he is working for or against you.  Always check one level deeper and follow-up.
• The assumptions that you make consciously won't hurt you.  The assumptions you take for granted -- what "everybody knows" -- will kill you.  Always check the assumption behind the assumption you make.
• If it's complicated, it is probably a bad deal.
• If you don't understand it, it is a bad deal.  Don't buy any product or service from someone who can't or won't explain it to you in terms you understand.
• Don't confuse income with wealth.  Income can end with a dismissal notice or a change in interest rates.
• Don't confuse wealth with the current price of an asset.  People get carried away with prices -- up and down.
• People think of inflation as prices going up.  It's not.  It's the value of money going down.
• There are no guarantees, only guarantors.  The phrase "It's Guaranteed" requires the response: "By whom?"
• Only the Ten Commandments were written in stone.  All other laws are at the whim of politicians who will change them in response to current pressures.
• When you change the rules a little, you change the game a lot.
• Convenience is usually expensive.  Ignorance is deadly.
• "Collectables" are faddish.  They come and go.  When everyone knows it's a "collectable" the game is over.
• You can't spend yourself rich. You've spent a lot of time and effort to make a buck pretax.  The money you don't spend is worth more than the money you earn--it's after tax.
• Fund your IRA every year--early if possible.  Invest in an equity or local return mutual fund.  Equity returns compounded over long periods are truly amazing.

This list was compiled by Ron Muhlenkamp, of Muhlenkamp and Company, Inc. . Ron is the founder of the company and an award-winning investment manager. So he should know what he's talking about.