9 Personal Finance Rules You Need

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9 Personal Finance Rules You Need

There comes a point in time where we all need to become financially responsible, becoming more deliberate with the way you spend money can be annoying, especially if you've never done it before. But if you want to live stress-free and have some money for emergencies so that you can sleep better at night a financial plan is necessary.

Financial situations are very varied but most of us can really improve by actually putting some effort, sure if you spend every dollar you earn in absolute necessities there's not a lot you can do, but even in those case you can maybe buy cheaper food or save some on coffee or whatever, so in this post we'll be going through 9 rules you need to implement to significantly increase your chances of reaching financial freedom.

1. Create an Emergency Fund
This should be the first rule you implement, it's really common for people who are just beginning to invest or be more deliberate with their finances to have to face an emergency that derails their entire plan. Accidents can happen any time and even if you have medical and car insurance you can get in trouble out of nowhere.

Emergencies can happen all the time and are by definition unpredictable it can go from having to repair something that you need for your business to a personal emergency. Just be sure to have some money prepared, you can start by just saving $500 and move up from there, some people even recommend saving 3 months of expenses in case you lose your job, how much you need to save is entirely dependant on your situation but you need to have an emergency fund regardless of how much you earn.

2. Don't get into High-Interest Debt if you have already, pay it ASAP
Having to pay a high-interest Debt is one of the easiest ways to ruin your finances, credit cards tend to have really high rates so be sure to always pay on time. There's also a snowball effect where a small amount of debt can get ridiculously big really fast to the point where it becomes uncontrollable and just keeps growing. If you are in this situation you need to stop investing and paying other debt and focus on getting rid off this type of debt (this applies if your debt is growing faster than your investment, which it usually is as stocks don't usually pay rates as high as the ones credit cards charge).
The later you start paying the more troublesome this debt will become so try to just avoid but if you have to use it plan ahead so you can pay it as soon as possible before it gets out of control.

3. Budget
Budget can be really beneficial to reaching your financial goals but most people can't stick to them so in this point I'm not suggesting that you stick to a predefined budget like the 50/30/20 budget as some people might not be able. But you need to track your expenses and see where the money is going and try to approximate how much you spend on different aspects of your life. While you might not stick to a specific budget because your expenses always change at least you will become more mindful of your money and hopefully you'll spend it better.
If your expenses are relatively constant and you're in a financially stable situation you should totally create a budget and stick to it, this is really useful if you need to find money for investments or projects but can't find any at the end of the month and once you get used to budgets you're probably on your way to a good retirement and financial freedom.

4. Make Investing a Priority
The easiest way to increase your wealth is to put your money to work for you, investments oftentimes do not offerr the most attractive returns, you might ask why you would put $1000 in stocks and wait an entire year just to make like $100 bucks where you could have made that by working in way less time, which is a fair point. But if you have money at the end of the month (which you should if you're following the previous rulers) why not make it create more money? especially since it won't cause you anything.
The money you make at your job costs time, and your time is not indefinite so you need to find other ways to increase your wealth and the easiest way to do this is by investing besides taking the power of compounding into account investing is probably the easiest way to actually get rich since running a successful business is really hard. If you don't know anything about Investing check out our Beginner's Guide.

5. Don't overcomplicate your Finances
You know the fastest way to drop your budget? just complicate it to the point you can't even understand it. This happens all the time, if you're just starting with personal finace you might want to find the best budget method and start obsessing on whether you can cut here and there or whatever. Or maybe you just started investing and now you want to find the way to reach the highest returns so you invest in risky derivatives but then you want to mitigate that risk so you open another account and invest passively there tracking an index but you don't know the optimal distribution between the accounts and then you start investing in foreign markets to diversify your risk and soon enough you can't even explain what your investment plan is.
The last example might be a bit exaggerated but you get the idea just stick to what works and once you're comfortable with whatever it is you're doing maybe then you can tweak some aspects of your finances. When you start you want to make your finances as simple as possible.


6. Start Saving For Retirement
It's easy to postpone saving for retirement after all if you're young there's plenty of time right? wrong. The sooner you start the better especially nowadays where you can do it through your 401(k) and maybe even get a match from your employer. Keep in mind that the sooner you start contributing to your 401(k) the more time you give the money to compound and grow exponentially, definitely something to keep in mind.

If you don't have access to a 401(k) you can do it on your own through a Roth IRA that you can get from a ton of options, most people use the Roth IRA from Vanguard but that's up to you the point is: start saving for retirement as soon as you get the opportunity.

7. Pay Full Price only if there's no other Option
Nowadays there are a lot of options in whatever you're buying. It doesn't make a lot of sense to buy something that loses like 25% of its value as soon as you take it out of the store like cars from example. Or maybe you're just paying for a brand when there's a generic version that does exactly the same. Take advantage of this whenever you can, this doesn't mean you have to be cheap or buy knockoffs, do it when you think it's appropriate and do pay the extra when it's worth it, just don't get ripped off by marketing and what people say.

8. Start Building Credit
Credit has become one of the most useful tools in the 21st century to the point of becoming a necessity, sure some people argue against the entire use of credit cards or any type of credit whatsoever but for most people, that's not a choice. If you want to buy a home someday you will need a good credit score, it will make getting a mortgage way easier and might even get you lower interest rates.
In order for banks and other institutions to trust you need to start building credit if you are interested in how credit scores work and how can you raise your credit score or start building credit from scratch, this article will be useful.

9. Live Below Your Means
The last one on the list but probably the most important one if you take a single rule of this post it should be this one, it might be hard for some people to do this especially if you struggle at the end of each month but as people start making more money they experience something called "lifestyle inflation" which basically means that as you make more money all your expenses also increase thus leaving you struggling at the end of month again.

If you want to get out of the regular 9-5 job or you just want to stop living paycheck to paycheck you need to live below your means, what's the point of making let's say 10k a month if you're spending 12k per month to pay for your lifestyle you're not building wealth, you're actually doing the opposite. So regardless of your current situation, you need to save money and you need to invest this can only be achieved if you're not spending all your money as soon as you receive it.

That all for this post and remember the last post, you will never accumulate wealth if you spend as soon as you earn it so be sure to save some money and start spending it more wisely if you want more tips check out our personal finance section where we have similar articles to help you reach financial freedom as soon as possible.