A friend emailed me this excellent guide to personal finance today. If you are anything like me you will admire it for its parsimony. Email text below in italics. I have lightly edited the text to remove some personal commentary.
The personal finance game is three steps:
Step 1 = Earn Money
Step 2 = Spend Less Than Money Earned
Step 3 = Use The Difference To Increase Money Earned, Or To Decrease Money Spent
- Think about your career. Try to advance it so that you earn more money.
- Take a second job to earn more money. (Side hustle might be the best marketing trick ever. Side hustle = second job)
- 101 Ways To Live Like A Poor Hermit.
- Pay less tax.
Using The Difference
- Pay down debt. (this is the same as investing, IMO, it’s all allocating capital effectively)
OK I’m back. At an even higher level you can sacrifice a bit of resolution and summarize the personal finance game as:
Step 1: Generate Free Cash Flow
Step 2: Allocate Capital Effectively
All (and yes I seriously mean all) financial problems, for all entities other than sovereign governments issuing fiat currency, reduce down to issues with free cash flow generation and/or capital allocation. Thus, beyond the time value of money and opportunity cost, free cash flow and capital allocation are probably the most important concepts in all of finance.