Rules of Personal Finance
Do you want to win, when it comes to your money? Do you want to feel like you are in control of your finances and really making progress towards your financial goals?
The best way to accomplish your financial goals is to learn some good financial rules to live by and implement them into your life.
As I have learned more about personal finance and managing money, I have come across some rules of personal finance that really help in our efforts to manage money and reach goals. I want to share these ideas with you and hope they help you in your own finance journey.
Personal Finance Rules of Thumb
Have a budget
The first rule of finance, and the almost guaranteed way to win, is to create a budget that works for you.
Then you need to stick to that budget. Budgeting for your family is a process, and it takes time to make a budget that really works for you, your life and your finances
Your budget will be different than everyone else’s and that is the way it should be. Your budget will reflect what is going on in your financial life AND the goals that you are working towards.
I cannot stress enough the importance of making a budget FOR YOU.
Understanding where your money goes each and every month is critical to creating a budget that works for you. It is also how you will be able to tell if you are progressing towards your goals, or not.
When you are budgeting, make sure that you are also tracking your spending. Keep your receipts, monitor your credit card statements and keep track of where every dollar is going each week or each month.
As you track your spending, you will be able to see how much progress you are making towards paying off debt, savings goals and more.
Being diligent about your tracking will allow you to tweak and fine tune your budget so that it really does work for you. Our Free Budgeting Planner includes an expense tracking sheet to help you get started.
Live Below Your Means
One of the biggest rules of personal finance I have learned is the need to live well below your means.
What does this mean exactly? In short, do not spend every dollar that you make.
If you look at how much money actually hits your bank account each month, and how much your expenses are each month, you will be able to see if you are spending less than you make, spending all that you make each month, or spending more than you make each month (EEK!)
To live below your means, you need to make it so your monthly bills and expenses are less than how much money actually reaches your bank account each month.
If you focus on living below what you make, you will be able to save and invest what you have left. When you do this, you can reach financial goals more quickly AND you will be set for retirement and later life because you will have prepared in advance.
Get Out of Debt and Stay Out of Debt
I will be honest–I HATE debt. I hate it so much that I worked and sacrificed like a crazy person to pay off Mr Dentist’s student loans as quickly as humanly possible.
But if you want to win with money, one financial rule you should follow is to get out of debt.
Debt steals your income month after month. Instead of being able to use your income for your wants and future goals, it is taken away each and every month to pay off those pesky loans.
Make the effort to pay down your debt, and then don’t go back in. We will drive older model cars to save up for our next car to pay in cash. We are taking the time to save up for a BIG down payment on a house, because I don’t want to have a mortgage longer than is strictly necessary.
When you get out of debt, you suddenly have more options for your income and where it goes. Do it. Your future self will thank you.
Have an Emergency Fund
Let’s be honest. Life happens. Crazy stuff happens to every person in life. Some of those crazy things cost a little, some cost a lot!
After we had our third child, I had to have an unplanned surgery–and it wasn’t cheap. Then 2 years later I had my appendix out–another unplanned, expensive surgery.
Cars need repairs, sometimes unexpectedly.
The fact is, life happens. And it does not happen when it is convenient for your finances.
So build up an emergency fund. It doesn’t have to be big. But having something when life happens will let you have much more peace and won’t derail your money goals nearly as bad.
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Get on the same page as your spouse
I know that talking about money with your spouse can be hard. It might lead to fights, frustration, overwhelm, disappointment–all the things.
But if you are married, you really need to work together on your financial goals and how you are going to manage money in your marriage.
Sit down together to dream about what you want your life to look like, what you want to accomplish. And then start talking about what the finances for that dream would look like. And then start talking about how to make that reality.
When you work together to accomplish goals, you will have a much greater chance of success and feel much greater unity in your marriage.
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Having a general idea of where you want to be with your life and your money is good. But just having a general idea won’t actually get you there.
You need to sit down and really figure out where you want to go in life and what you want to do. AND what you want your money to do for you.
Think about where you want to be in 10 years, and then work backwards to see what you need to do to get there. Then think about where you want to be in 5 years that is related and on track with the 10 year goal. Do the same for what you want to accomplish in the next year.
The more time you take to write out your goals and how you plan to achieve them, the more likely you will be to reach them because you will have laid out a path to get there.
Make sure to revisit your goals often. Are you getting closer? Do your goals need to be adjusted a bit? Have your goals changed and the steps need to be altered.
If not don’t set goals, you are more likely to just wander through life. And then you will wonder what happened and where all your money went.
Sit down, set clear goals and write them down. And then start working to achieve them!
Focus on Retirement
It is becoming too common in this country for people getting close to retirement to not be prepared for retirement at all.
In truth, I am concerned about my own parents and their finances as they get closer to retirement. Already they are feeling the pinch of not having prepared well enough in advance.
The thing about being prepared for retirement is that you don’t need to make a ton of money, or have a two income house, in order to be successful and ready for retirement.
What it does take is being consistent with saving and investing for retirement, and letting that money grow over time.
Dave Ramsey suggests saving 15% of your income every year into retirement accounts. Take advantage of employer 401(k) match programs (basically you could double your money instantly) and max out Roth IRAs as soon as possible.
If you make enough money and those two things don’t add up to 15%, well then you can explore some other options.
It is important to make retirement planning a priority. Just thinking “oh, I’ll save later” or “I’ll borrow this from myself through my retirement account and pay it back later” will not do you any favors.
The best way to save for retirement is to do it so you don’t have to think about it. Have the money come out before you even get your paycheck in your hands. Then you budget the money that actually hits your bank account and you have already saved a good chunk of money! And the chunk you have saved will gain interest and grow over time for you.
Saving for retirement is an important financial rule. Make it a priority. Your future self will thank you for taking of it now.
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Get Life Insurance
Do you have a family that depends on your income? Then most likely you need to get some life insurance.
Life insurance is there if you pass away early and your family loses your income and needs money to live.
I know it isn’t fun to think about dying young, but as we have said before, life happens. The unexpected sneaks up on you. Don’t let poor planning affect your family’s future.
We have a term life insurance policy on both my husband and myself. My husband because we rely on his income and would need some help if he passed away, even after I would start working to care for my family. And we have it on me because he would have to hire Mary Poppins to replace what I do for the family–and would need the money to hire such a wonder woman. 😉
Term life insurance is actually very reasonably priced. We include it with our monthly car insurance bill and don’t worry about it any more than that.
I highly encourage you to look into life insurance and see about taking this extra step to take care of your family.
Final Thoughts on Financial Rules to live by
These rules of personal finance are all ones that we live by in our marriage. And, though we haven’t reached all of our financial goals yet, we find that living by these rules is helping us to get closer to those goals.
Personal Finance is so much about personal action and determination. You can achieve your financial goals and live a life you love, if you put in the effort.
What financial rules do you choose to live by? Did I miss any that need to be on this list? Let me know in the comments.