Golden Rules Of Personal Finance: There are a lot of successful people out there who have mentors who helped them learn the skills that led to their success, and I’ll do the best I can to offer you some critical perspectives on personal finance. Some people believe that life is a school in which you only learn the lesson after you have completed the test. The same thing applies to money, but there is no way to correct catastrophic financial mistakes that you have made throughout your life. You are a player on the field of the money game for as long as you are alive, and in order to avoid getting tagged by the more experienced players, you need to have a fundamental understanding of the game’s rules.
Here are the top 5 golden rules of personal finance and personal growth:
- Save 10% of Your Income: Consistently setting aside a portion of your earnings can help you build wealth over time. This rule emphasizes the importance of prioritizing savings and investments for long-term financial security.
- Keep Your Finances Under Control: Maintaining control over your finances is crucial for avoiding debt and money problems. This involves regular budgeting, timely bill payments, and proactive planning for unexpected expenses or financial setbacks.
- Pay Off High-Interest Debt Strategically: When dealing with consumer debt, focus on eliminating high-interest balances first to minimize the amount of interest charges over time. This rule promotes smart debt management and financial discipline.
- Prepare for the Unexpected: Life is unpredictable, and financial security requires being prepared for unexpected events, such as job loss, medical emergencies, or other crises. This rule emphasizes the importance of having a safety net, including emergency funds, insurance, and estate planning.
- Live Below Your Means and Avoid Consumer Debt: Avoid overspending and prioritize needs over wants. This rule encourages financial responsibility, frugality, and a mindful approach to consumption to achieve long-term financial stability and growth.
These golden rules combine personal finance principles with elements of personal growth, promoting financial discipline, responsibility, and preparedness for a more secure and prosperous future.
to make money by dealing with money. The only way to prevent yourself from spending the rest of your life as a wage slave is to establish a savings account. The interest you earn on your savings could be put toward increasing the amount you spend on your lifestyle, shortening the amount of time remaining before you retire, or making it possible for you to have a retirement at all. How are things going with your plans to save money and put it to work for you by earning interest?
Each dollar that you spend removes it from consideration as a potential source of income for you in the future. I am not suggesting that you stop going to the movies or eating out at restaurants; rather, I am suggesting that you use some common sense, such as taking stock of your four most significant expenditures throughout the past few months and working actively to find ways to cut back on those costs.
The presence of any personal debt (other than a mortgage on your home) or a lease of any kind presents the greatest challenge when attempting to adhere to the first rule. Every dollar that you put toward your own personal debt is one less dollar that your net worth has the potential to earn for you over the course of your lifetime. Taking on a significant amount of personal debt is analogous to punching a large hole in your wallet. When playing the money game, a significant wealth disparity emerges between those who “have” and those who “have not” when it comes to the phrase “I can afford that monthly payment.” A clue is that the people who say things like that are the ones who are considered to be “have nots.” Therefore, I implore you not to ever consider whether you can afford a monthly payment in order to make a purchase; instead, pay for the item in cash after you have saved up enough money for it. [It is reasonable to assume that the price of anything that comes with a payment plan has no interest attached to it. Behind the scenes, your payment contract is sold to a lender along with an interest rate. Retailers don’t do this unless they’ve built in an acceptable profit for themselves, so they can continue to offer this service. If you ask the store how much the item will cost if you pay for it all at once, you might be able to negotiate a lower price.
Maintain constant command of your financial situation. The first thing to do to start spiraling into debt and other money problems and lose control of one’s financial situation is to avoid dealing with one’s finances. By purchasing health, life, disability, and auto insurance, you can protect yourself financially in the event of a catastrophic accident. Make a list and put money aside before making a purchase. At the very least once a year, you should make a balance sheet for yourself so that you can track your progress. Make sure that every bill is paid on time, or get in touch with the creditor, explain what’s going on, and offer to make a partial payment. If you find that you are temporarily unable to handle any of this, you should immediately ask for some assistance and locate someone reliable who is willing to do this for you.
The most common cause of financial difficulties is a traumatic event that occurred in one’s life. This may be an issue with your physical health (such as high medical bills or an inability to work), an emotional issue (such as the breakup of a relationship or the death of a loved one), or a financial issue (losing a job, cut in pay, relocation, unexpected expenses). No matter where it originates, it always results in the same emotional fallout: first, a state of denial; second, a feeling of being overwhelmed; and third, a sense of hopelessness. People who are overwhelmed are paralyzed from getting assistance and dealing with the situation, while people who are in denial do not open their mail and continue spending as usual. For instance, if you have recently lost a loved one, keeping your checkbook in order and paying your bills probably aren’t at the top of your list of priorities right now. Unfortunately, even small amounts of debt can snowball into seemingly insurmountable mountains of debt when interest and penalties are added to the mix. This leaves you with unfavorable options such as declaring bankruptcy, having poor credit, reducing the amount of money spent on your lifestyle, and adding stress to both your relationships and your professional life.
Pay close attention to the ways in which those who you spend the most time with financially manage their lives. These people, whether they are members of your family, friends, or colleagues, have the greatest influence on your professional and personal finances. Do they behave themselves in accordance with the first two guidelines of the money game? Do they make approximately the same amount of money as you do? If you answered “no” to either of those questions, then I would suggest that you begin spending a bit less time with them, and here is why. It is unlikely that you will follow the first two rules consistently yourself if they do not follow them consistently themselves. You unconsciously take cues from the people around you, and the more people there are in your environment who break the first two rules, the greater the likelihood that you will do the same without even realizing it. Even though no one believes they are “trying to keep up with the Joneses,” the reality is that we all do it to some degree, and this is the mechanism by which it happens. On the other hand, if they bring in significantly more money than you do, you might end up incurring a significant amount of debt to keep up with them (meeting them at their favorite expensive restaurant, joining them for another expensive vacation, buying a new car because yours is the junker among all of your friends, etc.) On the other hand, if the majority of your close friends make a lot less money than you do, you will end up becoming the banker for the group. For instance, you’ll get into the habit of whipping out your credit card to pay for dinner, and your companions will all assure you that they’ll pay you back later; however, more than half of them will never make good on their promise. They don’t mind taking advantage of you because, after all, you make a lot more money than they do. Or, you and some friends are going to rent a house together, and the deposit needs to be paid, but your friends expect you to write the checks because you have the money on hand and they do not.
In addition, the neighborhood in which you reside puts you under additional financial pressure to deviate from your first two financial goals. Your neighbors have an impact not only on the likelihood of you becoming friends with them (something I’ve already mentioned), but also on the size of your home, the extent of your landscaping, the price of your furniture, and the size of your television. Therefore, you should pay very close attention to the financial situations of your neighbors. If you don’t like how they are measuring up for the first two rules, you should consider moving somewhere else that is more in line with your financial goals. Find some additional people to spend time with who have financial behaviors that you admire and would like to emulate, and if your family and friends don’t measure up financially, find some other people to spend time with who do. Although I have friends whose incomes span a wide range, I find that it is much more challenging to adhere to the first two money rules when I am with people whose incomes are on opposite ends of the spectrum from mine. When you hang out with people whose economic status is closer to your own, you’ll find it much simpler to advance to the next rule.
Quicken the pace of the remaining three rules:
By advancing in your career and thereby increasing your income, you can add to the money you have saved. It makes no difference if you enjoy it or not because it is a means to an end, and that end is making progress toward the completion of rule number one. You can increase the amount of money you save by making aggressive cuts to four of your most expensive expenses. Start associating yourself with individuals who engage in financial discourse and are methodically working to build their wealth at the quickest possible rate. The combination of these four rules should, with any luck, provide you with a next step that you can take right away to begin accumulating a greater number of ‘wins’ in the money game.