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Personal finance at its core is about our mindset, action, and the habits that we develop. Sure the money is important, but these personal aspects are just as important. Part of the development of that mindset, habits, and our actions are rules. Of course, these rules can also help us be better managers of our money as well. So keep these rules in mind–they’ll make your life easier when trying to be fiscally responsible!
Rule 1: Salary and savings are different. A lower income person saving a few hundred dollars a month is richer than a high salary executive who spends all their money.
Rule 2: Save first, invest later. The whole principle of “pay yourself first” is another great piece of advice that not many follow. A wise investment decision is to put some money into a high savings rate account. It gives you a larger safety net to work with.
Rule 3: Avoid credit card debt. Having a credit card is a fantastic way to drop your net worth significantly and make it a pain to recover it.
Rule 4: Live below your means, not in it. Sometimes the best way to get ahead is to lower your standard of living. Eat out less, consider buying a used car than a brand new one. Downgrade a little.
Rule 5: Have credit. Loans, mortgages, and student debt are our lifetime’s big-ticket items. As such it’s important to have good credit so you can still get loans if need be. This means– don’t throw out your credit cards. Keep at least one, but make sure to pay it off every month.
Rule 6: Look at your expenses every month. Personal finance is about habits…and you can cut back when you look at your spending habits.
Rule 7: Automate the process. Automation is great and it’s a sneaky way to save without you having to remember it.
Rule 8: Do big-ticket purchases right. People spend a lot on big ticket items and that can ruin your finances. If you absolutely need to buy a big-ticket item, be smart about it. See: Rule #4.
Rule 9: Make an effort to save more each year. One sneaky way to save more is to boost your saving rate every time you get a raise. This way you don’t even notice it. In the event where you have set up automatic transfers to savings or investment accounts, increase it little by little with each raise and year.
Rule 10 – Be wise with friends and neighborhoods. Whether we spend little time with our neighbors or not, we all have a tendency to mirror our actions with others. If you live in an area where everyone spends way too much on cars, it will affect you. The same applies to friends as well. In the end, our money habits do pass around to others around us.
Rule 11: Talk about money. People are raving about politics which was quite taboo but money is still one of those taboo subjects. Take some time to actually talk about money and ask for help in areas of finance too. The last thing you want is financial problems to be left unanswered.
Rule 12: Material purchases doesn’t equal long-term happiness. For sure there is a short-term burst of dopamine when we get something, but it short lived. It’ll wear off and we’ll move on to something else. That’s not to say never buy other items but do it sparingly as it won’t make you happier overall or wealthier for that matter.
Rule 13: Read books, or at least one. There are so many personal finance books out there it can make your head spin. If some of that bores you, then take some time to skim it as there is a lot of valuable information in it.
Rule 14: Make more money. Saving and cutting back costs can help a lot, but the strategy isn’t complete if you are putting no effort into making more money. Find a way and push towards it. Whether it’s working for a promotion or a raise or even starting a business. Find some other streams.
Rule 15: Stop thinking about retirement and focus on financial independence. The dream for people is to hit a certain age and retire. It’s long-term thinking, but that line of thinking is missing the point. Retirement is where you can live off of the money you made: financial independence. So focus on that instead.