The Top Seeds in the Bracket of Awesome Personal Finance

by Kevin on March 27, 2014

March Madness is in full swing. A 16 seed still hasn’t topped a 1 seed, but the rest of the bracket is in chaos. We’ve got 14 seed Mercer knocking off perennial favorite and 3 seed Duke, a 10 seed Stanford knocking off 2 seed Kansas, and everything in between.

In the spirit of March Madness I thought we should look at what I’ll call the “Best Personal Finance Concepts Bracket.” Just like you would expect a #1 seed to make it far in the tournament, these are the tactics and strategies that when performed successfully are most likely to lead to financial success. That’s not to say a lower seeded tactic won’t help you, but these are the most likely to lead to winning.

The Top Four Seeds of the Bracket

Overall #1 Seed: Spending Less than You Earn

I’ve written about spending less than you earn a ton over the years and for good reason. This is the favorite to win our theoretical tournament due to the strong foundation it creates for everything else you do in life.

You can’t perform many other positive financial tasks if you are consistently spending more money than you are bringing in. It doesn’t matter if you’re a millionaire or just starting your career at the bottom of the totem pole if you spend more than you make. Both parties are broke!

Overall #2 Seed: Having an Emergency Fund

This is a strong contender for the title because it can save your bacon in so many different ways. Living on the edge of financial bankruptcy is not a place of comfort. If you never build up a rainy day fund you are walking that fine line even if you don’t realize it. A small hiccup without an emergency fund can wipe you out while a huge financial problem with a strong emergency fund can save you from ruin.

Overall #3 Seed: Investing for Retirement Early

I’d like my road to retirement to smooth and paved with gold bars. If you’re like me you need to get started today.

When it comes to retirement nothing will do you as much good as starting as soon as possible with socking money away for when you clock in for the last time.

There are three variables to investing for retirement: how much time you have money invested, how much money you invest, and the rate of return that invested money earns.

Starting today means you have to rely on the other variables less. That means not having to save as much money and not having to take as much risk to generate a significant return.

Overall #4 Seed:  Responsible Credit Use

Credit cards aren’t evil. Home mortgages aren’t evil. A company giving you the ability to borrow money at a cost isn’t evil.

These things are tools that must be used responsibly. Successfully using them in the right manner can actually net you tens of thousands of dollars over your lifetime. 

The largest example is that of a home mortgage. If you use credit well and have a solid credit score you will qualify for the lowest mortgage rates around. Irresponsible credit use would land you in higher interest land. The difference is staggering. A $160,000 mortgage with a 30 year term at 4.25% would require you to pay $123,357.38 in interest. That same mortgage at 5.5% would require $167,046.46 in interest.

The difference? $43,689.08. 

Off of one home purchase.

Use credit wisely and all of your credit costs go down permanently. It’s a strong contender in this bracket.

What other “seeds” should get strong consideration from the selection committee?

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