Do you have personal finance rules that you live by? If not, why not? Other parts of your life are governed by rules, so why not your personal finances? Think about it rules are generally established to tell you what is and what is not acceptable. When it comes to your finances you should definitely develop a set of “guidelines” that will help you achieve your financial goals, whatever they may be. These rules should keep you in control of your finances and focused on the future. Let me be honest, I didn’t always have personal finance rules but once I implemented them I was in greater control of my finances.
5 personal finance rules to live by:
- Always Pay Yourself First
Always set aside something for YOU before you spend any of your money. This is a critical component for your future financial security. The best way to commit to this is to set up an automatic deduction, whether it is for a 401k, IRA or a savings account. If you have a 401k you should always contribute, especially if your employer matches because the match is FREE money. Contribute at least the amount of the employer match; you are essentially doubling your money.
- Never Spend More than You Earn
This is a pretty basic rule but so often ignored. If you are spending more than you earn, you are sacrificing your future because you are creating debt. If you can’t pay cash for it you shouldn’t buy it. Remember debt is not free, there is a cost associated in the form of interest. It’s important to establish a budget so that you know exactly how much you have coming in and how much is going out so that you won’t overspend.
- Needs BEFORE Wants
Needs should ALWAYS come before wants. Knowing the difference between needs and wants is critical for following this rule. It’s really pretty simple NEEDS are essential to your everyday living such as shelter, food, clothing and transportation. Keep in mind it does NOT the most expensive of these items, it should be what fits comfortably within your budget. WANTS are things not necessary for everyday living but are nice to have. It’s easy to get in trouble financially when wants are placed before needs.
- Consider the Future Financial Impact when making Money Choices Today
The impact to your future financial security should ALWAYS be considered. Satisfaction today should not be at the expense of sacrificing your future. Before making a financial commitment, ask yourself the following questions: Is this going to create debt? Is this a need or a want? Will this sacrifice my financial security in the future?
- Avoid Debt
Debt should be avoided at ALL costs, especially carrying credit card debt and high amounts of student loan debt as it can be very costly. Of course there will be some instances where debt may be required such as the purchase of a home but even then it should be minimized. To minimize and/or avoid debt save up and then purchase.
In addition to personal finance rules you should also incorporate enhancing your financial literacy. Commit to learning as much as you can about personal finance through various resources such as by reading books, articles, and participating in financial workshops.