A lot of us have made serious financial mistakes over time and we are often overwhelmed by the sheer quantity and variety of financial advice, coming from all corners of our lives. From family, friends, and colleagues, while these recommendations may sound cliché, it’s shocking to see how many people ignore the need to do even the easiest things, like having savings.
Here are our 4 Golden Rules for Personal finances to help you govern your personal finance decisions. Feel free to replicate these rules in your day to day or you may personalize them as you see fit.
Let’s get to it.
- Spend less than your earnings
Your expenses MUST be less than your earnings. This is the golden rule of personal finance. If you’re looking to avoid debt and financial difficulty, the formula for success is that simple. When your earnings are lower than your expenses, it will be an uphill task to save or achieve any big financial goal. You’ll need a miracle to do so – and betting your future on a miracle is something you should never do.
- Set a budget
The first step to setting a budget is to identify your net income, that is the amount of money you have coming in on a regular base. It is also important to make a list of monthly expenses, this will include monthly bills, household expenses, and fixed expenses. Assign a spending value to each expense category and ensure you follow through on your estimated cost. Once all of these are done, having documented your expenses and income, you can identify unnecessary expenses and cut back accordingly.
- Build an emergency fund
If you do not have an emergency fund stashed away as savings right now, this should be a priority. This piece emphasizes the importance of planning, but certain things may be out of your control; an unforeseen medical bill, an expensive car/home repair, an unexpected lay-off. You can start building an emergency fund by ensuring you set aside an amount for savings on your next payday. This will come in handy should an emergency beckon.
- Start saving early for retirement
When it comes to saving for retirement, the best time is now. Even on a modest salary, you can accumulate a significant amount of wealth over a long period. Start saving in your 20s and not only will you have more time to accumulate a significant amount, but you’ll also have ample time for compounding interest to work its magic on your finances.
When it comes to personal finance, being disciplined with your money is the most vital trait. The pointers above will be a great way to start. At the end of the day, it won’t matter how much money you have but what you have been able to do with it. Little drops of water eventually make a mighty ocean. While this might sound cliche, you would be surprised to see how many people disregard the need to do even the simplest things, like building a month-on-month savings culture or making a budget.
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