Basic Personal Finance Rules and When to Break Them
When you start managing the money that you have earned through saving or investing it, you are already working on your personal financial management. Thus, that is already personal finance. It also includes budgeting, mortgages, insurance, banking, and tax and estate planning, as well as retirement planning.
But on a personal note, when we talk about personal finance, it is about achieving your own financial goals. You should already be setting financial goals for your retirement plans, saving for the college education of your children in the near future, or even just for your short-term financial needs.
Of course, you will need to consider a few points when setting up goals for your finances. It would still highly depend on your monthly income, living requirements, expenses, and your individual goal as well. You also might not want to forget your personal desire to set up these goals.
Following the Rules
The personal finance journey is not an easy road to take, so you need to take it seriously. Every person has their own financial priorities. But even if we have listed these priorities, there are still times that we pause and think, did I manage my money correctly or not? Even if we are in a tight budget situation, we still can have the chance to manage our finances. Here are the following rules that we should know, learn, and apply in our lives:
Allocate Money for Your Emergency Fund
Experts in financial planning encourage people to start saving for their emergency fund. It is never reasonable to think of having some “leftover cash” from your money after you have already spent it on other things. The effective rule of thumb here is to continue saving until you have enough to cover for your household living expenses, preferably three to six months of expenses. To make sure that everything will go on smoothly in saving for your emergency fund, you can set an automatic bank transfer after receiving your paycheck. Through this, you won’t have any reasons to forget and not save for yourself.
Pay Your Bills Every Month
One of the main reasons why people get into an uncontrollable-debt situation is because of their monthly bills. To avoid getting into that stressful scenario, you can’t go wrong in religiously paying off each of your bills every month. A piece of advice: Get only what you can pay off at the month’s end. You can control it by placing the supposed-money-to-be-spent to your savings account, or you can place it on the fund for paying your bills instead.
Choose the Best Credit Card
Go for the card that will maximize your financial goals together with your daily purchases. Of course, it would be better if you get to choose a credit card that will help you build a good credit and not drag you even further into the debt hole. Although it depends on the cardholder, it is still better to get the one that will give you cashback on every amount that you have spent on your purchases. Also, this credit card company should also help you earn rewards. With hundreds of credit companies out there, you are assured that you will get a suitable credit card for you.
Start Saving for Your Retirement Plans
Have you started saving for your retirement? If you asked anyone in the workforce, you will be shocked to hear that they have stopped contributing to their fund, while others didn’t even start on it. However, if you want to have a better retirement plan, you should be taking care of the power of compound interest and the time as well.
Experts recommend to save at least 15% of your total income every year for your retirement plan. If you feel like that percentage is a bit too high, you can start saving just a small portion of what you have earned from that year. It is better to at least have saved some, even if it is a low amount, than not to save at all. Remember, you want to take advantage of the time, so start small and expect enjoyable years when you retire.
Don’t Be Afraid to Ask for Help
You are building a secure and financially stable future for yourself. It isn’t easy, but you don’t need to do this alone. You can ask for help, especially when it is all about managing your hard-earned money. You can seek guidance from a financial professional. With this professional, you can expect better financial advice and greater means to manage your finances.
Aside from asking some advice from a professional, it will also help if you will use a money app. Find an app that will guide you in tracking your financial progress, as well as in reaching your financial goals. It will also be helpful if you will set a date to pay off your bills, check on debts, and even have a conversation with your partner about your financial plans and goals. Through these, you know that, little by little, you are already in the progress of completing your personal finance management course for yourself.
Breaking the Rules
We have discussed the essential rules in personal finance. When we say rules, you would not want to break one or else you will be getting yourself in trouble. That can be true, but these rules may only apply to some and not to everybody. Every one of us has individual circumstances when it comes to our finances, so some of us really need to break down these rules for us to live by with our finances.
Here are some rules that should be followed but would depend on the circumstances, so you can consider breaking it for the better:
Investing in Long-Term Projects or Riskier Assets
Have you ever been advised to go for a long-term investment or a buy-and-hold type of philosophy? This may have been an old rule that every person that had just begun their finance journey followed, but you can choose not to follow this rule. Because the global market continues to change, if you want to be on top of the game, you should learn how to adapt to things like these. Now that you have decided to break free from long-term investing, it is now high time for you to go for a much safer investment.
Investing or Saving a Portion of the Income
There is nothing wrong in saving what you have earned for the year in a bank, but are you sure you are really taking into account your other finances? Let’s take an example of saving for your retirement plan. You may have been starting to save it for your retirement plans, which is good, but are you sure that you can save 15-20% of your income? Besides, if you have applied for loans or have credit cards, you know which will be your monthly priority.