It’s important to have a good income stream or even multiple sources of income. However, knowing how to manage your financial resources is more important. Rather than spending recklessly, you should be able to control your cash flow and effectively manage your money. This can be achieved when you are acquainted with the right set of money rules to live by.
Truth be told, there are rules and principles in every aspect of one’s life, including finances. Anyone who intends to obtain financial success must learn to observe the rules or cues guiding the use of money. This post seeks to reveal and analyze some of these money rules to live by and their impact on your finances.
If you want to build a solid financial foundation that would be beneficial to even your next generation, ensure you strictly follow these rules.
What Is The Best Money Rule?
One of the best money rules ever would be “living below your means“. What this means is that you should never incur expenses that are beyond your financial capacity. Applying this simple rule to your finances will save you from many critical problems, such as debt traps and bankruptcy.
Impact Of Money Rules On Your Finances
Following the rules of money will impact your finances in diverse ways. From investing your hard-earned money to saving for retirement, you will experience significant progress. Contrary to what most people believe, you don’t even have to earn much money every month to live comfortably. As long as your personal finance is built around the right money rules, you will succeed.
For instance, when you are fully aware that saving for the future is an important financial rule to live by, and you practice that rule consistently, you will certainly reap the benefits later on. You will be able to save for your children’s education, your house rent, health bills, and other related expenses in the future.
9 Essential Money Rules To Live By
Living by money rules has a lasting impact on your finances. It improves your money mindset and makes your long-term goals more feasible. Here is a list of money rules to live by:
1. Living Below Your Means
Living above your means is one of the worst financial decisions you will regret later. As a matter of fact, it’s impossible to grow your income or pay down debt when you keep living above your means. It’s like a bottomless pit that swallows your finances and never gives it back. To avoid a pathetic situation like this, you must learn to live below your means. Never spend more than you earn no matter how tempted you are.
This is where self-discipline is expected to come in. If you are responsible enough to discipline yourself when it comes to being frugal or managing money, you will never have to break this essential money rule and live above your means.
Instead of living above your means, try as much as you can to increase your income so that it matches your expenses. That’s a good way to stabilize your finances. Nonetheless, if you want to learn more about this rule and how to apply it to your finances, here’s a post that offers a simple guide on how to live below your means.
2. Save For The Future
You can’t be financially prepared for the future if you don’t start saving now. Having a contingency fund or a savings account where you consistently transfer a certain amount of cash is one of the money rules to live by. It is the only way to take control of your financial future and avoid disappointments.
Surprisingly, you don’t have to be rich to be able to save money. Even if you are living paycheck to paycheck, you can still save money by deducting 2 to 5% from your monthly take-home pay. However, it’s best to increase your income so that it can be much easier to fulfill your obligation to save money.
If you are currently wondering why you should save for the future, then it’s high time you consider important things such as your children’s college education, retirement, or perhaps another covid-19 pandemic. There’s no better way to secure your future financially than saving.
Remember, the best time to plant a tree was yesterday, the second-best time is now.
3. Budget Your Money
If you aren’t budgeting your money, you are certainly not following one of the crucial money rules you need to live by. A budget is simply a plan for how you intend to spend your income, and it shows you the places where your money is meant to go. Without building a budget, chances are that you will spend recklessly, make impulse purchases, and even pile up credit card debt.
To budget your money, the first thing you need to do is examine your regular net income. How much is your salary after taxes and other important deductions? Once you figure out how much your take-home pay is, then you can go ahead and build a budget that is below your net income.
For example, if your take-home pay is $6500, the expenses your budget covers are expected to be around $5000 (without savings though). You can transfer some of the remaining cash to your savings account while spending the rest on miscellaneous expenses.
To learn more about budgeting, check out this article that explains the simple step-by-step process for budgeting your money.
4. Build An Emergency Fund
This is one of the key money rules to live by if you don’t want to struggle with emergency expenses.
There are expenses you plan for, such as your utilities, groceries, transportation, subscriptions, and many more. Meanwhile, there are expenses you aren’t always prepared for, such as automobile repairs, medical bills, losing your job, or facing inflation in the country. Setting up an emergency fund is the only way you can build a financial wall to protect yourself from these unexpected expenses.
Create a high-yield savings account where you will contribute a certain amount of money weekly or monthly within a period of 6 months to 5 years. With time, your savings will yield interest and grow bigger. If you happen to be in an emergency and you are in dire need of cash, your emergency fund can save you.
Ideally, the money in your emergency fund is expected to cover 3 to 6 months of your expenses conveniently. Until you get to this point, your emergency fund is not mature enough.
5. Invest Wisely
Making wise investment choices is one of the simple money rules to live by, and it’s a reliable strategy for securing your future financially. Fortunately, there are countless investment options available. Whether you choose to invest in real estate or by venturing into the stock market, the profit margin of your investment would be satisfying.
Nevertheless, before you invest in any venture, make sure you consult with a professional in that field. For example, if you want to invest in real estate, you should speak with an expert in the industry who knows when and how to make the right investment. Doing this would save you from making costly mistakes while investing your money.
6. Manage Your Credit
If you must know how to avoid debt trap, this is one of the money rules to live by. Managing your credit score is all about ensuring you have a good and impressive credit history. Hence, always ensure your debt or loans are paid in full on time. The moment you delay making a payment, your credit can be affected severely.
For example, if you are paying off student loans and you take longer than expected to complete your payment, your credit score could be damaged.
If you aren’t sure why you need to manage your credit, start thinking about situations where you might have to take a loan to meet a financial need. No one would want to lend you money if you have a bad credit history. It doesn’t get any simpler than that. People with a damaged credit history find it nearly impossible to obtain loans or grants, essentially from the private sector.
7. Borrow What You Can Pay
One of the best money rules to live by is never borrowing what you can’t repay on time. Before taking any loan, whether a mortgage or car loan, ensure you are financially capable of paying off the debt within the time given by your creditor.
For example, if you are accepting a loan of $50,000, and you are expected to pay it back in 2 years, you should be earning at least $6000 every month. Deducting $2,500 from your paycheck monthly within 2 years will amount to $60,000, and that’s enough to pay off the loan and its interest. This is simple math and logic that could save you from debt trap.
8. Isolate Your Savings Goals
This is one of the money rules to live by if you intend to achieve your financial goals faster.
Ideally, you are supposed to have different savings goals. You are supposed to save towards goals such as retirement, emergency, education, and other important financial objectives. This means that you shouldn’t combine the different savings in a single account. Your emergency fund shouldn’t be built into the same savings account where you have your retirement fund.
The main reason why it’s important to isolate your savings goals from each other is that it enables you to track the progress of your goals respectively. You can easily monitor each savings goal and you won’t be tempted to tamper with the money.
9. Grow Your Savings
Keeping your savings in a checking account is a big mistake. Your checking account is expected to hold money that can be spent anytime.
To grow your savings, you must store your hard-earned in an account that earns a competitive annual percentage yield. This means that at the end of each year, your savings would increase by a certain percentage (maybe %10). Even if the savings rate is low, compound interest allows your money to grow with time.
Another reason this is one of the essential money rules to live by is that you can always reach your goals faster as long as your savings keep growing. But more importantly, finding a reliable financial institution that offers better interest rates and favorable terms is key to growing your savings.
Final Thoughts On Money Rules To Live By
There’s no denying that there are many other money rules to live by than the ones mentioned above. However, it’s best to consider the financial rules listed in this post as the fundamental principles upon which you will make many more wise decisions concerning your finances.
Remember, without applying these rules; you won’t be able to build a healthy financial life. Besides, you will be prone to make bad financial decisions with costly consequences.
However, since you probably can’t remember all these rules and apply them at the right time, there’s just one rule you should never forget – living below your means. You will avert many financial challenges if you make it a point of duty to always live below your means.
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