Monday, July 14, 2008

With a Sound Financial Base, You Don't Need Many Rules

At church yesterday we were discussing how the difference between doctrine, principles and rules. I realized that the same concepts applied to personal finance, and present them here for your feedback.

  • Doctrine -- Doctrine are the final answers on everything. In the finance world this would be the laws and regulations in the finance industry, the details of your credit card contract, etc. There are a lot of points of doctrine.

  • Principles -- Principles are attitudes and beliefs which guide your actions. They should be built on top of the doctrine. For example, the principle of "Spend less than you earn" is built on top of the doctrines of fiscal responsibility, bankrutpcy and the laws governing reposesion, among other things. There are less principles than doctrine.

  • Rules -- Rules are the actual implementation of your principles which you follow day to day. Rules are what you need to do to stick to your principles and be in line with the doctrines which you need to follow. Rules might include things like "Only use the Credit Card when I have sufficient funds in my Savings Account" or "Any non-budget purchases need spousal approval" etc.

The point of the lesson at church was that if our doctrinal base is solid we don't need as many guiding principles. If our guiding principles are good we don't need to keep track of as many hard and fast rules.

I think the same thing applies to finance. For me, the less absolute rules I have to keep track of, the better. I also don't want to learn all of the financial regulations that might affect me (there's a reason I didn't major in finance). So, I have some basic financial rules I use in my day to day, and if something seems to fall outside those rules, I can consult my principles and see what I should do.

What financial Principles and Rules do you live by?

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