Golden Rule Of Personal Finance #1. To earn money from money. The only way to escape becoming a wage slave for the rest of your life is to set aside savings. The profit on your savings can be used to increase your lifestyle spending or reduce the number of years until you retire. How are you doing so far toward saving and getting it to earn money for you?
Every dollar that you spend eliminates its ability to earn money for you in the future. I am not recommending that you stop eating at restaurants and going to movies, I am recommending that you use some common sense, like looking at your 4 biggest expenses over the last few months and aggressively finding a way to reduce them.
The biggest obstacle for the first rule is personal debt of any kind (other than a mortgage for your home) or a lease of any kind. Every personal debt that you incur reduces your net worth which could have been working for you over your life time. Acquiring personal debt is exactly like putting a large hole in your wallet. In the money-game, a huge transfer of wealth occurs between the ‘Haves’ and the ‘Have-Nots’ over the words, “I can afford that monthly payment.” Here is a hint: the “Have-Nots” are the ones who make that statement. So please don’t ever look at whether you can afford a monthly payment to make a purchase; pay in cash after you’ve saved for the item. Everything that you buy with a 0%-interest payment plan must be over-priced. Behind the scenes, your payment contract is sold to a lender with an interest rate, and retailers don’t do this without building-in an acceptable profit for themselves. Ask retailers how much the item will cost if you pay in full, and you could get a lower price.
Golden Rule Of Personal Finance #2. Always keep your finances under control. The first step in losing financial control and spiraling into debt and money problems is simply not dealing with personal finances. Prepare for catastrophic financial accidents with health, life, disability, and auto insurance. Plan and save before you buy something. Create a balance sheet for yourself at least once a year to see how you are progressing. Pay every bill on time or contact the creditor to tell them what is going on and make a partial payment. If you are temporarily unable to handle any of this, ask for some help immediately and find someone trustworthy, who will do this for you.
The most common source of financial trouble for people usually happens due to unexpected circumstances. This can be a health problem (large expenses or unable to work), an emotional problem (divorce or loss of loved one), or a financial problem (losing a job, cut in pay, relocation, unexpected expenses). Whichever the source may be, it leads to 3 emotional problems: the first is denial, the second is being overwhelmed, and the third is hopelessness. Denial causes people to not open their mail and continue spending as usual and being overwhelmed paralyzes people from getting assistance and dealing with the situation. For example, if you just lost a loved one, balancing your checkbook and paying bills is not high in your priorities. Unfortunately, tiny amounts of debt grow with interest and penalties into seemingly insurmountable mountains of debt, leaving you with loathsome options such as bankruptcy, poor credit, declining lifestyle spending, and additional stress.
Golden Rule Of Personal Finance #3. Pay attention to the finances of the people with whom you spend the most time.
Whether they are relatives, friends, or co-workers, these people have the most impact on your financial life. Do they consistently follow the first 2 rules of the money game? Do they earn about the same money as you? If the answer to either of those is “no”, then you might want to start spending a little less time with them. If they don’t consistently follow the first 2 rules, it is unlikely that you will either. You unconsciously model the people around you, and the more people you are exposed to that don’t follow the first 2 rules, the more likely that you will unwittingly follow them.
No one thinks they are trying to “keep up with the Joneses”, but we all do it to some extent, and this is the mechanism. On the other hand, if they earn a lot more money than you, you may rack up a lot of debt trying 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 car among all your friends, etc.) On the other hand, if most of your friends earn a lot less than you, you will turn into the group’s banker. For example, you’ll find yourself in the pattern of putting your credit card down to pay for dinner and they’ll all say they’ll pay you back later, but 50% of them never do; and they don’t mind taking advantage of you because, after all, you earn a lot more than they do. Or, you and your friends need to pay a deposit for renting a house and they expect you to write the checks because you have the money available and they do not.
The neighborhood that you live in also creates financial pressure to violate the first 2 financial goals. Your neighbors are likely to become friends (and I’ve already gone over this), but they also influence the size of your home, extent of your landscaping, price of furniture, and the size of your TV. So, pay very close attention to the finances of your neighbors – if you don’t like how they are measuring up for first 2 rules, move somewhere more in alignment with your financial goals. If your family and friends, don’t measure up financially, find some additional people to spend time with that have financial habits that you’d like to emulate and learn from. I have friends with a wide range of income, but it is much more difficult to follow the first two money rules when I am with the extremes from my own income. You’ll find it easier to reach the next rule when the peer group that you hang out with aligns closer to your economic level.
Golden Rule Of Personal Finance #4. Accelerate the other 3 Golden Rules Of Personal Finance.
Add to your savings by increasing your income, through advancing your career. It doesn’t matter whether you enjoy it; it is a means to an end – with the end being progress toward the fulfillment of rule #1. Increase the amount that you save by aggressively lowering 4 of your highest expenses. Start spending time with people that talk about investing money and are systematically building their wealth/net worth.
By following “The 4 Golden Rules Of Personal Finance”, you are likely to accomplish what most people only dream about, and that is to achieve financial freedom!
5 Important Things You Need To Know About Money – https://www.mastersofmoney.com/5-important-things-you-need-to-know-about-money/