The First Rule of Money Has Nothing to Do With Money
Protect your integrity before anything else.
Photo by Andisheh A on Unsplash
The phone rang.
It was 11 pm on a Friday night. I was sitting in my room with my girlfriend.
Who would be calling me at 11 pm? No way I am answering, right?
But I had to answer. It was my boss.
My look to my girlfriend asked if I could answer. She nodded and shrugged. Why was my boss calling me so late on a Friday night?
“Hi, Jim.”
My boss cut right to the purpose for the call.
“Hi, John. I am here at the office doing inventory for the end of the month. Hey, have you talked with Trevor recently?”
“No,” I said. “Not really. Why?”
“I just noticed a few things, and I needed to check on them before the end of the month.”
It was the last day of the month. The last hour, actually.
Trevor was my co-worker, but also a friend of mine. He was the one who got me the job working for Jim and the startup. Trevor and I both worked in the same area, doing logistics and whatever else needed to be done.
“Okay. Have you spent much time with Trevor in the last six months?” Jim asked.
I answered honestly, “No, not really. He’s been pretty preoccupied. I haven’t seen him or even talked to him much. I assumed that he had been getting ready for his wedding and then been pretty busy after that.”
That was the truth. Trevor had been distant. I had attributed it to planning a wedding and being newly married.
“Okay, thanks. That’s all I needed. See you on Monday.”
It was a short call, and an odd one for 11 pm on a Friday night. But it was a call that started a transition in my life that I wish never happened.
My friend and co-worker Trevor had been embezzling from the company. My boss, Jim, had just discovered what happened. He was questioning everything at that point — including me.
He called me to figure out if I was involved in the stealing.
I wasn’t. But Jim didn’t know that. Because Trevor was my friend, I fell under Jim’s suspicion.
Why would my friend embezzle a huge amount of money? Why would my friend steal from a company that had done so much for him?
He failed to follow the first rule of money.
. . .
I Hate Advice About Money
I love talking about money and most things related to it. But I hate giving advice about money. And I hate giving advice if I don’t know the individual personally. It’s not like I am a financial expert. I don’t have certifications or a degree in finance.
Moreover, I desperately try to avoid giving advice that has not worked for me personally and for people that I know. Plus, situations can change. Economies shift. Markets jump — and fall. What worked today may not work tomorrow.
But I do have experiences that have taught me invaluable lessons about money. I have started seven different businesses. I worked for a startup. I have worked as a manager. I have hired people. I have fired people. I have served on boards. I have traded in the financial markets. I have studied money. I have read numerous books about finances. I have helped people get out of debt and take control of their finances. And now I am a lawyer who advises businesses and individuals about one thing, mainly: money.
Reluctantly, then, do I dare to share one principle that I value above all others when it comes to the topic of money.
The first rule of money has nothing to do with money — it’s about something far more important.
. . .
Warren Buffett’s Rule #1
Warren Buffett’s first rule is: don’t lose money. His second: don’t forget rule number one.
I certainly don’t have the results to confidently disagree with Mr. Buffett. But I will say that his first rule is likely buttressed by my first rule. You can’t lose money if you don’t have any money.
Warren Buffett has spoken about what he looks for in leaders:
Brains
Energy
Character
Character, to me, is something that should be guarded and nurtured. And a part of character is this: your integrity.
My Rule #1 is this: don’t lose your integrity.
. . .
Protect Your Integrity With Your Money
For me, integrity means living according to your core values and moral code, including doing the right thing when no one is watching.
But what does integrity have to do with money?
A lot.
As I have worked with businesses, I have learned that so many problems start with one problem: undercapitalization. There just isn’t enough money.
My rule begins from the idea that if most problems are caused by a lack of money, then first get a pile of money that can be used to solve problems.
I certainly realize that the idea of accumulating money is not novel. Probably every financial advisor I know advises to have an emergency fund of three, six, or twelve months of expenses.
My advice is the same: get a pile of money that is liquid. Use it as a security blanket. For the purposes of keeping this article informal, let’s just call the principle having a “big pile of money.” The amount varies based on each person’s situation.
Again, nothing new or novel.
My contribution, however, is explaining a new reason for collecting a pile of money.
And that reason is this: it protects your integrity.
Robert Kiyosaki suggests having three separate financial plans: (1) a plan to be secure, (2) a plan to be comfortable, and (3) a plan to be rich.
I’ll add one: a plan to keep your integrity.
If you lose money, there is usually time to earn more. If you lose your integrity, it is nearly impossible to gain it back.
Having money set aside, whether it is an emergency fund or otherwise, allows you to protect your integrity in numerous ways.
First, you won’t live paycheck to paycheck. If an unexpected expense arises, it may be inconvenient, but it won’t drastically alter your life.
More importantly, though, you won’t be tempted to compromise your integrity in order to survive.
Temptation is everywhere. For example:
When people have access to other people’s cash without appropriate oversight, all it takes is one moment of weakness to get in trouble.
When selling, there are opportunities to “puff up” the truth of a product or service in order to make a sale.
When we work at a company that engages in practices that we disagree with, we may feel trapped because of our inability to leave without financial burden.
Many people are willing to disregard rules and laws in order to achieve goals. And many times those people will offer unlawful or illicit money, favors, or incentives.
It might be easier to hide the truth — or avoid it — in a relationship that is important to us, if it allows us to save money.
We might feel pressured to make a decision too quickly based on a lack of money.
We might feel pressured to pursue illegitimate or risky methods.
Every financial temptation can be boiled down to a number: the amount of money that is at stake. If the amount at stake is less than the amount in your big pile of money, then the temptation is gutted. Why would you risk your integrity over an amount of money that is less than what you already have? Succumbing to the temptation becomes not only unethical, but also irrational. And even if the amount at stake is more than what you have, why would risk the amount that you do have? There really isn’t a good answer to that question.
Is it worth it to steal thousands of dollars from your employer, your client, your family, your friend — if you have tens of thousands of dollars in the bank?
Is it worth it to lie to sell something if you don’t need that particular sale to feed your family?
Is it worth it to stay in a job or position that harms your reputation if you can survive for a year without your paycheck?
Is it worth it to take a bribe or cut corners if you don’t need the extra money?
Is it worth it to lie to someone you love — and permanently damage the relationship — if the amount that the lie would cost you is much less than your pile of money?
Is it worth it to rush into a decision just because you don’t have financial options?
Conquering temptation is the goal of the first rule: maintain your integrity.
The first rule is similar to my evolving mindset for exercising. When I was a teenager, I exercised to play sports. Then I transitioned to exercising to bulk up and get lean. Then I learned that I just wanted to stay in shape. Recently, I have had a realization: I exercise now to avoid injury. An injury prevents me from being effective in all of the other areas of my life. Your integrity is the same way. If you succumb to temptation and compromise your integrity, it will prevent you from being effective in every other area of your life.
. . .
The First Rule Matters
I have personally witnessed the first rule of money in action. Emergencies will happen, but following the rule turns the emergencies into inconveniences and not death sentences.
One startup I advised faced a securities fraud issue that had to be resolved in hours. If the founders did not have a reserve of money — saved exactly for this kind of emergency — then the much-needed funding would not have arrived soon after. Having sufficient capital allowed the startup to survive — and now thrive.
My friend takes the same approach when he produces movies. He has avoided death sentences during production by making sure that he has a pile of money that can solve problems. Even though he can’t predict the exact problem that will occur, he certainly can predict that some problems will occur.
I think of my co-worker who embezzled money from our mutual employer. I wish he made a better choice. We might still be friends today. But when you lose your integrity, it is nearly impossible to get it back.
Just recently, I was confronted with a situation of my own, filled with temptation. I looked at an actual pile of cash. I thought about what I could do with it — it certainly would have been great to have. And it would have solved a few problems that had popped up. But then I thought of my own rule number one. The amount of cash that tempted me was less than what I already had. I didn’t need the money. Then my thoughts turned to my integrity. Taking the cash would not have been illegal, but would have harmed the reputation that I have guarded closely for years. I tried to put a price on my own integrity in that moment.
Would I trade my integrity for $1,000? How about $10,000? How about $100,000? Is there even a price that I would trade it all for, where the ends would justify the means?
These are hard questions. Every day people face tough situations and real temptations. And they are infinitely harder if you don’t follow the first rule of money.
Get a big pile of cash. Do it before anything else. Sacrifice. Work extra. Delay any type of gratification until your integrity is shielded.
Just do it — the earlier, the better. Imagine if the first fruits of your working life accomplish the first rule. Then, for the rest of your life, you will have a plan to maintain your integrity. And once you have executed that plan, you can work on other financial plans, like being secure, comfortable, and wealthy.
But it all starts with the first rule: protect your integrity.
. . .
Learn the one lesson that has changed my life more than any other.