1.  "Know thyself." There is a great deal of advice available on the subject of personal finance.  Much of it is excellent, treating all the topics covered below (and a great many more) with pithy insights and breath-taking completeness.  Much of that advice, however, works only if it fits with one's personality.  Some people need gimmicks and rigidity, while others resist almost any effort to impose order on their financial management.  Adopting a plan which requires behavior totally out of step with habits of long-standing will probably result in failure.

 2.  "Opportunity cost--the great principle."  The cost of any product or activity is the products and activities that must be foregone in order to purchase the product or engage in the activity.  Personal decision-making (by economists, certainly) involves all sorts of trade-offs and comparisons of the implications of choices.  For instance, time spent remodeling one's basement is time unavailable for working at one's regular job--can you earn more per hour than you'd have to pay professionals to do the work?  If so, work overtime and hire the work done.  Unless, of course, you expect to gain tremendous satisfaction from doing the job yourself.  Spending hours or even days shopping for an item to save a few dollars is another example of failure to consider opportunity costs.

 3.  "Budgeting sucks!"  Almost no one really enjoys budgeting, but there is no good substitute for it.   We all know that at some point we have to sit down to estimate expenses and match them with expected income; there's no other way.  And if expenses exceed income, we have to reduce living costs or find some way to increase income.  We all know that spending can't exceed income for very long.  It's embarrassingly simple, but very common for people to avoid doing the obvious.  Homo sapiens may be altogether too flattering a name for our species.

 4.  "Sunk costs are irrelevant."  There are at least two other common expressions that mean fundamentally the same thing: "Don't throw good money after bad" and "Don't cry over spilt milk."  The point is this: You can't recover past expenditures, so look to the future and compare only the future costs and benefits of various courses of action.  For example, a person might say about his car, "I just spent $1,000 on a rebuilt engine, so I have to buy new tires and brakes; otherwise, I would just be throwing away that $1,000."  A better approach is to compare where one would be in, say, four years, if the car is repaired versus where one would be if the car were ditched and replaced with a new one.

 5.  "Money can't buy happiness!"  That's probably true, but the lack of it or its mismanagement can sure buy a lot of misery.  Marriage counselors often say that the troubled marriages they see almost invariably involve a financial element.  Good money management probably won't save an otherwise doomed marriage, but keeping this most complicated of relationships together is enough of challenge without adding money troubles to the equation.  If I wrote maxims for a fortune cookie company, one of mine would be "Testing for financial compatibility before tying the knot can yield a very high rate of return."

MOST COMMON MISTAKES:

 1.  Too much life insurance.  Besides the possible temptation to beneficiaries of being worth more dead than alive, premiums can absorb too much of one's income.  Buying life insurance is hard to justify for people with no dependents, e.g., college students.

 2.  Too little insurance.  Replacing the income of a deceased person can be formidable and paying someone to do what he/she did can be equally daunting.  (Wives still tend to be most likely to be underinsured; women who contemplate child-bearing should buy insurance before becoming pregnant, when rates may rise.)

 3.  The wrong kind of life insurance.  Combining life insurance with some other goal--like a personal investment/saving program, for instance--is almost always an inefficient way to accomplish either objective.  "Buy term and save/invest the rest" is still very good advice.  NOTE:  There are rare--very rare!--situations where a whole-life policy makes sense for high-income professionals as a part of estate planning or complex compensation arrangements.  MY BEST ADVICE: Never buy whole-life or variable-life insurance without the recommendation of a CPA and/or lawyer who specializes in such matters and who has no stake in your decision to buy.

 4.  Failing to consider death benefits apart from other financial assets.  For instance, when savings and pension funds reach a comfortable level and/or no one will have to make major financial adjustments upon a person's death, life insurance makes little sense.

  5.  Paying premiums monthly or quarterly.  The increased charges--interest, really--are pretty high.  It's much better to budget a little to be able to make just one annual payment.

 6.  Buying life insurance instead of disability coverage.  The odds of an untimely, lengthy,
expensive period of disability are much higher than early death.  Investigate what your employer provides and consider supplementing it.  The coverage is tricky to obtain, taking a fair amount of effort to write so that payments do arrive when needed; talk to several providers before buying anything.

 7.  Buying credit life insurance.  It's extremely expensive and it's  illegal for lenders to require it--don't be stampeded into purchasing it (by car dealers, for example) unless you are unable to buy any other form of life insurance because of bad health, etc.
 
 While buying from an agent is not necessarily bad, there are alternatives which reduce costs and save time.  Here is a list of companies which specialize in making quotes available from several different companies; I've gotten very good service from the first on the list, but the others are well regarded, too.

SELF-INSURE -- LARGE DEDUCTIBLES

 While there is no way to predict exactly what will go wrong, one knows that "things happen" in life.  A way to save on policy premiums is to accept a very high deductible and keep a small fund  around to pay the first few hundred dollars yourself.  The insurance companies avoid costly nuisance claims and lower rates accordingly.

UMBRELLA POLICY

 Instead of buying liability coverage on both home and auto policies, purchasing a single umbrella policy to cover a wide variety of liability suits can save a few hundred dollars a year.  Makes good sense.

RENTER'S INSURANCE
 
 Landlords are not required to insure your contents in the event of fires or other catastrophes, and they are not liable for your guests' accidents.  The insurance is fairly inexpensive; no renter should be without it.

AUTOMOBILE INSURANCE

 There are two common mistakes car-owners make.  First, they carry collision insurance on old cars--better to save the premium and apply it to the fund for buying your next car.  Second, they don't carry enough liability insurance--a million dollars should be the minimum and two million is not a bad idea.  (See UMBRELLA POLICY above.)

HEALTH INSURANCE
 
 Good luck!  Until Congress changes the rules substantially, it's going to be very difficult for people without group coverage through work, Medicare, or Medicade to find affordable health insurance.  Kennedy-Kassebaum helps job-changers, but there are still some huge gaps for the population.

MUTUAL FUNDS

 Personally, I hate ‘em and avoid them except in retirement funds (where the disadvantages are offset by the inconvenience of holding individual assets).  Here's what I dislike:

 1.  Research is worthless.  There is little correlation between past and future performance--last year's winners are next year's losers.  It is impossible to predict what a fund's managers will do--no matter what the prospectus says.
 2.  The costs of management virtually guarantee the that average fund will underperform the market.
 3.  Management's selling of stocks creates tax liabilities over which fund owners have no control.  One can pay taxes on a fund which has declined in value.

 If mutual funds appear the most desirable vehicle, at least stick to the index funds.  They are cheap to operate, incur few taxable selling events, and will outperform most other funds over the long haul.  This approach is painless and as close to riskless as individuals an get.

INDIVIDUAL STOCKS

 Peter Lynch and Warren Buffet have it right.  Buy stock in companies you understand and respect.  Here's what I wish I had started doing 20 years ago.

 1.  Study one industry a year, select the best company in the industry,  and buy as much stock in the company as you can afford.
 2.  Stay with the company until you're convinced that it or its industry has fallen on hard times from which recovery is improbable.
 3.  Don't spend any of the dividends; use them to build up your fund for buying next year's stock.

 Start with $5,000 the first year and increase the amount a little each year following the first and in 20 years your stocks alone will be worth close to $1 million.

BONDS

 Bond funds are even worse than stock funds.  The commission on individual bonds purchased through normal channels is not too bad, but U.S. Treasury issues can be purchased directly through the closest Federal Reserve Bank with zero commission.  Buy a 10-year note each year (minimum amount of $1,000) and eventually your portfolio will have an average life of five years.
 

IRAs, 401Ks, ETC.

 Max out every year in whatever retirement programs you're eligible for.  Be aggressive and focus almost entirely on stocks.  Don't be too cute, but don't buy any municipal bonds (their interest is already treated preferentially by the IRS) or keep anything in cash.  While selling from your personal portfolio almost always has tax consequences, movements within tax-deferred accounts is free from taxes.  This means that adjusting your mix of assets--thinking of all assets as a part of the total picture--by movements within IRAs and other retirement accounts is often the best way to achieve the desired overall blend of stocks, bonds, real estate, etc.

 DON'T put after-tax dollars into IRAs or annuities--you just cause trouble later on; and everything you can do with either can be accomplished simply by buying stocks that pay little or no dividends.  Roth IRAs--contributions to which are not deductible--is the exception because the gains on it are free from taxation ever (or until Congress rewrites the rules)  and it can be tapped for the down payment on a home.  Anyone eligible for a Roth IRA should have one.

A FEW FINAL POINTS

 1.  Diversify.

 2.  Don't panic when stock prices fall, even if they stay down for quite awhile.  Keep on buying good companies; it'll work out.

 3.  Keep looking for good advice, but be wary of everyone--including me!--with a surefire scheme to beat the odds.  Damned hard to do.  Besides, average returns compounded over a period of time do pretty well.

 4.  Don't buy anything unless you understand it fully.

 5.  Have fun!
 
 

TO LIVE IN:
 
 1.  Think of housing as something to consume and not as an investment.  While it's nice when you are able to earn a profit on the sale of a home, there's a good chance that all your "profits" will have to go into buying a replacement at a bloated price.  Recent changes in the federal tax code make it easier to keep capital gains on home sales, but market forces have a way of incorporating such changes into the prices we pay.
 

 2.  Don't buy a house to save on taxes.  Most families have difficulty finding enough deductions to itemize (unless they own a home), so you're already getting credit for some of your landlord's property taxes and interest.  Thus, it's a mistake to calculate that ALL the interest and taxes are deductible from taxable income.  Furthermore, there are no deductions for replacing a roof, putting in a new sewer line, or buying a new furnace.

 3.  Don't obsess over paying off a mortgage early.  Here's the basic rule: If the interest you're paying on the loan is less than you can earn in the stock market or in your business or somewhere else, keep the mortgage as long as possible.  And don't pay off the home mortgage--at 8 percent--when you owe money on credit cards at 18 percent!

 4.  There's an exception to #3: If you just can't sleep nights because you don't own your home, then pay off  the mortgage as soon as possible.

AS A SOURCE OF INCOME:

 1.  While both residential and commercial property can provide an excellent rate of return, it's not for everyone.  You need to know what you're doing, and you need to be sure that you have the right personality to deal with tenants.  And be prepared to live with property that's unoccupied, sometimes for months or even years at a time.

 2.  Don't be sucked in by the TV infomercials that promise wealth to anyone who follows a simplistic formula for buying, renting, and selling real estate.  The people who do well in real estate work hard and they work smart.

 3.  Don't do anything until you talk to a banker, an accountant, and an attorney who have a great deal of experience working with clients who are involved in real estate.  Then move very cautiously.  Don't quit your day job too early in the game.
 

 2.  Do without a car if you can; if not, buy one that's inexpensive and use it as little as you possibly can.

 3.  Work hard when school's not in session and save most of what you earn.  Work only as much as necessary during the semester--preferably at a job that's a résumé-builder--to support a frugal lifestyle during school terms.

 4.  Devote lots of time to school.  It's hard to imagine a higher rate of return on one's time and money.

 5.  Avoid double-majors and anything else that prolongs your stay in college.  Finish in three or three and a half years if you can--adding an extra year to your worklife is real smart.

 6.  Don't borrow for college unless  you just can't avoid it; see #1 above.

 7.  If you do take out a student loan, don't repay any faster than required if you have any debts charging higher rates.  Repay ahead of schedule only if you can't find a use for your money that promises a return higher than the rate on the loan.  (See "Opportunity cost--the great principle" on the first page.)

 8.  Stay away from credit cards.  Use only in situations (e.g., car rentals for business) where there is no choice.  If you don't have the money, don't buy.  Once you're out of school, use them only for convenience and pay off the whole bill every month.  If you can't do that, you're using plastic unwisely--cut up your cards.

 9.  Don't overwithhold for taxes.  Getting a refund means you've given the government an interest-free loan.  That's carrying patriotism too far.  This is especially relevant for the first job that begins in June after graduation.  The IRS formula for withholding assumes you're earning at your new rate for the entire year--claim some extra dependents through December 31.

 10.  Stay away from the lottery unless you want to subsidize those of us whose taxes you're reducing by voluntarily paying more than necessary.

 11.  Reread #1.