In life, most successful people have mentors to guide them in learning the skills that lead to success; and in this article, we will do our best to provide you with the basics of personal finance.
It is often said that life is a school where lessons are learned by practicing and testing. The same goes for money, but there is no turning back to correct the catastrophic financial mistakes you may have made over time.
As long as you are alive, you are a player in the game of managing your personal finances and you need to know the basic rules. Let’s discover together the 4 golden rules for good management of your personal finances.
Rule 1: Make money with money
Learn to save
The only way to avoid becoming a wage slave for the rest of your life is to set aside some savings. The profit from your savings can be used to increase your lifestyle expenses; reduce the number of years until you retire, or allow you to actually have a retirement. So what are you doing so far to save and earn money?
Every dollar you spend eliminates its ability to earn money in the future. We don’t recommend that you stop eating out and go to the movies in order to make ends meet. Instead, we recommend that you use common sense. Analyze your four main sources of expenses over the past few months and find a way to reduce them.
Reduce your debts
The biggest obstacle to this rule is a personal debt of any kind (other than a mortgage on your home) or a lease of any kind. Any personal debt you incur reduces your capital which could have been useful to you during your lifetime. As a part of personal finances acquiring personal debt is exactly like blowing a big hole in your wallet.
Rule 2: Always keep an eye on your finances
The first step to losing financial control and sinking into debt and money problems is simply not taking care of your personal finances. Prepare for catastrophic financial crashes with health, life, disability, and auto insurance. Plan and save before you buy anything. Create a budget at least once a year to see how you are doing.
Pay all bills on time or contact your lender to tell them what’s going on and make a partial payment. If you are temporarily unable to handle it all; seek help immediately and find someone you trust to do it for you.
The most common source of personal finance problems is trauma in your life. It can be a health problem (large expenses or inability to work), an emotional problem (divorce or loss of a loved one); or a financial problem (loss of job, reduction in salary, moving, unexpected expenses).
The 3 emotional problems to avoid: Whatever the source of your problems, it leads to three emotional worries: the first is denial, the second is overcoming and the third is despair.
Denial causes people not to open their mail and continue spending as usual, and being overwhelmed prevents people from getting help and coping. For example, if you have just lost a loved one, settling your checkbook and paying your bills is not your priority.
Unfortunately, small amounts of debt grow with interest and penalties to become seemingly insurmountable mountains of debt; leaving you with unwanted options like bankruptcy, bad credit, lifestyle decline, and the added stress you bring to relationships and work.
Rule 3: The people you spend the most time with affect your personal finances
Whether they are relatives, friends, or co-workers, these people have the greatest impact on your financial life. Do they consistently follow the first two rules of money management? Do they earn more or less like you? If the answer to either of these two questions is ‘no’, you may face long-term difficulties, and let us explain why.
The habits and lifestyles of the people you date are important
If you’re dating people who don’t consistently follow the first two rules, you’re unlikely to. You subconsciously model the people around you. The more you are exposed to people who don’t follow the first two rules, the more likely you are to follow them unknowingly.
If most of your friends earn a lot less than you, you might turn into the banker of the group. For example, you’ll find yourself putting in your credit card to pay for dinner and everyone will say they’ll pay you back later; but 50% of them never will; and they don’t mind taking advantage of you because, after all, you make a lot more money than they do; obviously we’re a bit extreme, but we’re sure you get the point.
Surround yourself with people who know how to manage their money
So be very careful about the finances of the people you date – if you don’t like them to follow the first two rules and not measure up financially; Expand your circle of friends and acquaintances to hang out with who have financial habits you’d like to emulate and learn from.
Rule 4: Focus on the first three rules
Add more savings to your savings by increasing your income as you advance in your career. It doesn’t matter if you like it; it is a means to a good end – the end is progress toward the fulfillment of rule no. 1.
Make your money grow by investing your savings according to your appetite for risk. Increase the amount you save by aggressively reducing four of your biggest expenses. Start hanging out with people who talk about investing money and consistently building their wealth faster. The hope is that the combination of these four rules will give you the next step to take today to start getting more “gains” tomorrow in managing your money.