What's the Most Important Principle of Personal Finance?


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Every year, we turn our attention to one of our country’s most favorite past times: the NCAA college basketball tournament, or “March Madness.” Even those of us who don’t follow basketball enjoy filling out a bracket, trying to predict as many games as we can. And we look forward to underdogs dethroning the favorites and dramatic buzzer beaters.

A few years ago, I was asked to participate in a different kind of March Madness. Instead of a “Final Four” bracket, a personal finance organization reached out to thousands of financial planners and advisors and asked me to fill out a “Financial Four” bracket.

The goal was to come up with the top four money principles, and eventually, a champion principle of personal finance.

Here's the 32-pronged bracket, just like we're used to seeing in the NCAA tournament:

As you can see, important financial principles like "Build Emergency Savings" or "Keep House Payment Affordable" were pitted against each other in 1-on-1 match-ups with principles like "Calculate Retirement Needs" or "Establish Life Insurance."

Just like in the basketball bracket I usually fill out, the further into the later rounds I went, the harder it got to pick a winner.

All except for one particular principle, which, quite honestly, seemed like the no-brainer victor in nearly every one of its match-ups. Eventually, I was able to come up with my Financial Four and submit my bracket, including my champion principle.

But I was curious: would my opinion align with the other financial advisors across the industry?

I have to admit, I was skeptical of what the final results would be, since so much of the financial services industry is just aggressive product sales. I was sure "Life Insurance" would be the undeserving champion, or maybe something along the lines of picking better investments.

A little while later, the results of the Financial Four were announced. What was the general consensus among financial professionals across the country for the top principle of personal finance?


*Drum roll please*

Live Within Your Means won by a landslide, as detailed in the announcement:

‘Live Within Your Means’, by nearly 2-to-1, was the top choice among financial planners and advisors. Spending less than you earn and living within your income allowance is the best way to ensure you meet your financial goals.
— National Endowment for Financial Education

(In case you're wondering, Pay Yourself First [2nd], Rein in Debt [3rd], and Maintain Adequate Insurance [4th] rounded out the Financial Four)

I'm proud to say that "Live Within Your Means" was indeed what I had personally selected to be champion as well.

"Live Within Your Means" is not new to anyone. It's a mantra that's so universal that it almost goes without saying.

It's the kind of principle that to most people is a "no duh".

Heck, I don't even know if I've lost some readers in the last few paragraphs because they thought, "The point of this article is 'live within your means'?! Pssh. Tell me something I don't know."

There's wisdom to be found if you keep going.


If living with your means is such a basic idea, why do you think thousands of financial advisors - people who spend their lives helping others with their money - would choose it as the crowning principle?

It's not just because it makes logical sense. Obviously, living on less that what you earn creates a surplus of cash flow. Surplus, or money left over after meeting living expenses, can be saved toward future goals - or better, invested so your money can earn money and eventually create money for you at a rate faster than you can save it.

Of course, if you never live within your means in the first place, no long-term wealth accumulation can even occur (barring inheritances, lotteries, and the like).

So here's the real reason why I think "Live Within Your Means" was chosen as the most important principle over 63 others. It's because the respondents - financial advisors - witness first hand that people just don't actually do it enough.

This brings me to the critical distinction between simple and easy. Something that is simple conceptually does not equate to something that is easy to perform consistently.

In the last three years since my Financial Four bracketology experience, I've been able to observe that living within your means is something that is simple, but not not necessarily easy

But you know that too, don't you? Just think about health.

Exercising every day is a simple thing. Doing it is not easy.

Eating less calories is a simple thing. Doing it is not easy.

Getting enough sleep is a simple thing. Doing it is not easy.

We've learned to talk openly about simple-but-not-easy things in health, as there is no shortage of memes about our general difficulties with staying healthy:



Living within your means is no different - a simple idea, but not necessarily easy to execute.


We go around chiming "live within your means!" to each other in books and at church and in our heads. But because we're generally not comfortable talking about money in society, we don't go deep enough in conversation to realize that most of us aren't doing it enough. And that's mostly due to it being simple, but not easy, to live within our means.

Humans have a tendency to mistake complexity for effectiveness. We look for the complicated solution to our financial problems rather than the simple solution that just needs to be executed better.

I'd invite you to ruminate on the concept of living within your means. Are you doing it enough? Are you doing it too much and not enjoying your life? Do you feel like you're achieving the right balance between meeting current needs/wants while saving for future needs/wants?

Living within your means is a simple concept but can be far from easy.

For some extra tips, check out "Why Saving 10% Isn't Enough", "The 3 Real Ways to Cut Expenses" and how being grateful can help you increase savings.

At the very least, just find someone to be accountable to, whether it's a professional or a family member. It can make all the difference.

Now if there were only a way to to pick a perfect March Madness bracket...

Finding it hard to live within your means?

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