Everyone is different and may have financial situations that are unique to them. So not everyone will be able to follow these rules all of the time. However, the more you follow these rules, the better your financial situation will become. None of these rules are perfect but they may give you a quick check to see if your money management is on the right track.
1. Spend less than you earn
The number one fundamental rule for someone’s personal finances is this; spend less than you earn and save the difference for the future. According to a survey released by Bankrate.com, fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses. Which is enough to help cushion the blow of a job loss, medical emergency or some other unexpected event. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.
2. Know your credit score
You pay your bills on time, haven’t had any credit issues so you feel there’s no need to check your credit score because you know it must be excellent. Then you go to apply for a car loan or a mortgage and Bam! You find all kind of errors on your credit report making you seem like a credit risk and your loan being denied or subjected to a higher interest rate. Check your credit report at least once a year for free by going to AnnualCreditReport.com. Checking your credit report doesn’t hurt your credit score but lets you see what the creditors see and gives you a chance to make any necessary corrections.
3. Keep it simple
It’s easy to accumulate a lot of credit cards and other debt, but it’s a little harder to manage that debt. Also the more credit you have, the more chances you have for identity theft. The more investment accounts you have, the less attention you can give to each one and the more likely it is that you will miss a big problem. The more accounts and investments and bills you have, the more time and energy you have to spend to stay on top of it all and the more likely it is that you’re going to make an error. Even if you setup your accounts for automatic payments it does not prevent identity theft or mistakes by the credit issuers.
4. Build an emergency fund
If you do not have an accessible cash emergency fund, then this should be your number one priority. Cash is king for solving most of the problems that life throws at you. Unlike credit, cash is available in situations of credit problems or of identity theft. If you don’t trust yourself to set aside the money each payday then set up an automatic allotment that comes directly out of your check before you even get it. You probably won’t even miss the money and before you know it you’ll have a nice little nest egg for emergencies. Just remember needing a new pair of shoes for the wedding party is not an emergency.
5. Focus on eliminating high-interest debt
Now that you have your emergency fund set up and going, you should focus on eliminating your high-interest debt. Organize your debt by interest rates. The debt with the highest interest rates will be the one that you focus on paying off first. Try making double payments (or more) on the debt with the highest interest. Make the double payments until the debt is paid off. Once the debt is paid off tackle your next highest interest rate debt by adding the total amount of the payment you were making on the paid off debt to the debt you are now working to pay off. Keep repeating this pattern until your high-interest debts are gone.
6. Saving for retirement
Get every nickel of your employer’s fund matching in your 401(k). If your employer offers matching funds for your 401(k) plan, make absolutely sure you’re contributing enough to get every nickel of those matching funds. It’s free money, and free money should never be left on the table. Matching funds allows you to get an immediate return on every dollar that you save for retirement. Don’t let your employer keep that money in their pockets.
7. Build strong relationships
One of the most important things in life is having strong personal and professional relationships. Having such relationships can enrich your life in more ways than one. Having good people in your life will provide you with social, spiritual, emotional, and professional support when needed. These relationships must be cultivated, do not skimp on the time and effort that these relationships will need to be healthy. Listen to what these important people in your life are saying, be available for them and get involved with your community. These are the ways to build the important relationships you need to help make your life fulfilling.
8. Don’t worry about how the Jones’s spend their money
Just because your best friend is driving an expensive car, don’t feel that you need one too. Your friend and her boyfriend are updating their Facebook every day with pictures of their vacation in Spain. Don’t let this make you spend your money on something expensive that you don’t need to show you can hang with the Jones’s. Just because other people choose to buy things, eat at expensive restaurants or whatever else people do with their money, does not mean you need to do it too. Make choices and spend money on the things that will help you achieve your goals and that you care about. Don’t worry about how others spend their money.
9. Don’t worry about what other people think
This one goes hand in hand with not worrying about how others spend their money. Don’t choose a car to impress other people. Don’t choose your clothes because you think others will be envious. Don’t choose gadgets to one-up someone. Why? Because it won’t really impress them. It’s all about what you bring to the table, how you respond to people, your ideas, how you carry yourself, and how you treat others, that’s what impress people. Not the superficial things in life. Buy things that you need, make you happy, and will improve your future, not because you think others will be impressed.
10. Buy life insurance
Don’t let an insurance salesman fool you, in fact initially you don’t really need to talk to a salesman at all. There are numerous online sites that you can use to buy life insurance (Dave Ramsey suggests Zander Insurance Group). You don’t need much life insurance unless you have a family or someone who directly relies on your income. If you do have dependents, your best bet is to get a term life insurance policy, one that will pay out enough money to care for your dependents in the event of your early demise.
11. Build a budget
A budget can be a useful tool for keeping track of your spending as long as it’s done correctly. You build a budget based on your actual spending over the previous few months.
How much do you actually spend a month on food? Entertainment? Utilities? Your car? You need to have real numbers, estimates will not really help you. Check your bank and credit card statements to get the real numbers. You might be amazed at how much you really spend and what you spend it on.
12. Set big goals for yourself
What is it that you want for your future? Do you want a secure early retirement? Do you want to start a business? Do you want to travel and visit different countries? Do you want to find a job that you would love to do? Whatever your goals are, keep them in mind all the time. Do things today that will bring your goals closer to fruition. Remind yourself constantly of your goals so that you make better choices in your life to help fulfill your dreams.
13. Buy cars based on safety, reliability, and fuel efficiency
Those are the three main factors you should think about when it comes to buying a car because they will make an enormous difference in your finances. A reliable and fuel-efficient car will keep your fuel bills and your repair bills low for the entire time that you own it. A car that has a high safety rating will be cheaper to insure, saving you money on car insurance. Do your research when it comes to buying a car, there are many online sites you can use, such as Consumer Reports before buying your dream car.
14. Your retirement fund is off limits
When you’re struggling to pull yourself out of a financial hole, it can be very tempting to tap your retirement funds to pay off certain debts or to put a down payment on a house. If you can, avoid doing that. It’s hard, if not impossible to recoup the money you would have made had you not removed it from your retirement account and there is a good possibility that you will not adequately refund your account. Tap your retirement if you must, but only as a last resort.
15. Start a side business
Do the thing you’ve always wanted to do (without quitting your day job). Almost all of us have a big dream inside. Some people dream of becoming a fiction writer, others want to design or make things and sell them online. Whatever your dream, find a way to spend at least some of your spare time fulfilling it. It all begins when you make the choice to start.
16. Sleep on it
You see a pair of killer shoes that you just have to have. Feel free to try them on and ogle at yourself in the mirror, then take them off, place them back in the box, and leave the store (without the shoes). Sleep on it, ask yourself “do I really need those shoes”? How much will it set you back from reaching whatever goals you have set for yourself? This goes for any major purchase. The more expensive the item, the bigger window you give yourself to think it over. You will be amazed at how often you say to yourself, “I really don’t need…..” You fill in the blank. Cutting out impulse buying will save you an untold amount of money.
17. Share your dreams and your mistakes with your partner
If you’re in a long-term relationship, be completely open and honest about your finances, dreams and past mistakes with your partner. It is an incredibly powerful way to build a stronger bond between you and your partner and to maintain your focus. Encourage each other to improve but keep negative feedback and emotions in check. Discuss your goals and what you are doing to achieve them on a regular basis, it will make a world of difference in every aspect of your life.
18. Fix it yourself
The things that you can find on YouTube is unbelievable. Your toilet is having problems or your faucet won’t stop dripping don’t make your first call a repairman, try to fix it yourself. Google whatever problem you may have, if necessary borrow some tools and give it the ole college try. You may just find that you can fix the problem yourself, saving you some cash and building confidence for future repairs. The worst case scenario is that you end up having to call in the repairman anyway.
19. Cancel unused memberships and subscriptions
Got a gym membership you never use? Cancel it. What about all those magazines that come to your house that you never even open? Cancel them (besides you can read them for free at the library). Don’t watch your Hulu Plus subscription? Drop it. You have Amazon Prime but only order stuff at Christmas? Let it go. Unused subscriptions and memberships do nothing but devour your money month after month and since a lot of times it’s only ten dollars here or twenty dollars there you don’t think it’s a lot of money. But over the course of a year and several unused subscriptions or memberships that money can really add up.
20. “Stuff” will never make you happy
Remember that “stuff” will never make you truly happy, because happiness comes from within. You may enjoy the things you buy for a minute but “things” will never make your life fulfilling. Don’t buy into the idea that the more you own, the happier you’ll be, because it won’t. The biggest way money helps is by reducing your stress and eventually improving your life options through improved financial security. And you can only get to that point in life by being smart with your money.
The “rules” I have mentioned above are not written in stone and are just suggestions that should improve the quality of your life now and in the future. Not all the rules will work for you, so find the ones that will work since each of these can improve your financial situation. And if you only choose one, make sure it’s to save, save, save.