First of all, you’re going to hear different opinions from the experts. Why is that? Well, it’s because there’s often not an answer that works for everyone. Life patterns, goals, and situations are different for all people. Even those experts are looking at issues from different angles and form their opinions. So in this article I am sharing some of the personal finance rules to live by if you choose.
I majored in Finance at University (more on me here if you dare), but my love for personal finance began long before that. Take these rules from yet another expert and put them through your own filter to decide which of these work best for your life.
The 3 Day Purchase Rule
When you see that item that a friend has or a Facebook ad tells you, don’t do the impulsive thing and buy it right away. Yes, your gut and mind just said to you that you want it. In fact, you just have to have it. Right?
But instead, wait three days and let those impulse hormones calm down. If you still want to make the purchase after three days and think it’s a good idea for you, then go for it.
This simple rule has saved me thousands of dollars and kept me from buying things that I would have regretted.
Personal Finance Rule of Interest
Interest is interest. You’re either going to be paying it or making it. Decide which side of the fence you want to be on. If you’re on the borrowing side, you better ensure your interest rate is low (meaning you have excellent credit). If you’re making interest, you want the highest return possible with the right amount of risk for your situation.
Bonus Tip: Rule of 72: Divide the interest rate you’ll earn into 72, and that’s how long it takes for your money to double. So at 8% interest, you’ll double your funds about every nine years.
Be a Savvy Shopper: Buy in Bulk
No, you don’t have to buy four year’s worth of ketchup. But if you can get a 15% discount by buying in bulk or paying in cash, that’s equivalent to you making a 15% return. Think about this for a moment. What investments do you have with no risk that make you 15%? That’s what I thought!
Use a Great Bank
This one might sound basic, but I’ve come across many people whose parents never taught, and therefore they only operate with cash. The federal government insures your money in a bank for up to $250,000. You can set up auto-pay for your bills and credit cards. Find an online bank with no fees and overdraft protection.
Cash can get you discounts, and maybe you’re doing it not to pay your fair share in taxes. Tisk tisk. But it can also burn up in a fire or be stolen by intruders.
Today is interesting as we’re in a new age with FinTech. There are now neobanks like Cash App, Venmo, Dave, Step, and many others. They are partnering with traditional brick and mortar banks to make sure your money is FDIC insured, and they’re becoming serious players in the banking arena.
More and more banks charge no fees and are tech savvy and simple to use. Find a great one.
Use Credit Cards… But Avoid Credit Card Debt
Using credit cards to buy things you can’t afford and paying minimum payments on that card makes me shiver. Using credit cards for your everyday monthly purchases and paying them off in full each month makes me smile.
If you can do this, you can use the advanced method of credit card hacking. You can actually make money every year by using a credit card. We earn $1,000 or so every year from our standard monthly recurring purchases (gas, groceries, phone bills, etc.). To get to the $1,000 mark, we might need to sign up for a new card to get a signing bonus. Or we might notice that we get 6% back on groceries for a specific card. But we have a few cards that we use regularly.
Learn to Negotiate
In many countries, it is customary to negotiate the price of everything that you purchase. Why not use this trick in America? Now, this won’t exactly work on your next McDonald’s visit, but if a local gym offers yoga classes for $30 a session, why not tell them that you’ve got $20 cash and see if they can make that work? If they have openings, they’ll probably go for it. And people love cash. Negotiating is one of the great personal finance rules to live by.
The easiest thing to try this with is your current bills that you’ve had for some time, like your phone or internet service. You can try something like “I like your service. Can you possibly see if there is a better price? Your competitor has a special for X, and I’d love to see if you could match their price.” A company like TrueBill can assist you with this.
Watch Your Credit Score
If you have a good credit score (can check your for free on a site like Credit Karma), you get the best rates on loans from sites like Credible. For those just starting to build their credit, you can get a loan period! For a beginner, my thoughts would be to get a credit card, put it on auto-pay, only use it to pay your gasoline or expenses that you will have each month no matter what.
Bonus Tip: If you have children, add them to your credit card account using their information. They’ll receive a card in the mail. You can just put this in a drawer. As long as you pay off your cards on time, you will be building credit for your child as they will be associated with that account.
Work From a Financial Budget, Even if it’s a Rough One
I’ve always found this a challenge as our income varies from year to year and even month to month. My goal would be for it always to increase, but that’s not necessarily the case. So I work on what I can control—our expenses. So, we’ve developed our average monthly spend, and then we benchmark this towards our income to gauge if we’re in a healthy place or need to make adjustments.
But you’ve got to have an idea of how much money comes in and goes out. You’ve got to see where you can reduce it if necessary. Or maybe you need an additional source of income if you can’t (or aren’t willing) cut expenses. You only have two choices – raise revenue or lower costs. A budget will help you make wiser decisions for these items.
Keep It Simple When Investing
First, have enough cash for an amount of time that you feel comfortable with. Experts will say things like 90 days, six months, or even an entire year. This is your call. But creating a buffer when you get hit with a financial emergency is essential.
Once you’ve reached this goal, invest. It’s not recommended to buy individual securities; somebody typically knows more than you do. Instead, invest in low-cost mutual funds or index funds (like Vanguard). Individual companies can vary wildly over the years, but historically the markets themselves have performed pretty well. If they don’t, we’ve got bigger issues on our hands.
401k (The Free Money Machine) & Tax Accounts
If your company offers this, it’s typically a great idea to max this out up to the portion that’s matched by your company (it’s in essence, free money).
If possible, max out tax-advantaged savings vehicles like Roth, SEP, and 529 accounts.
Personal Finance Rules to Live by: Saving & Giving
Save 10% of your money. If possible, save 20% or more. Give away 10% of your money. If possible, give away 20% or more. Think of programs that help people when things go sideways on them. You’re giving for the social good, but it’s also possible that if you ever needed assistance from these programs, that they might be able to help. I try to love my neighbor as much as I love myself. Hard to do, but I try.
Know that every rule above is not set in stone, as personal finance professionals often disagree on these items. I think there’s a healthy balance in there somewhere. But these are my top personal finance rules to live by. Just know that personal finance is important and you should develop a strategy.
There’s a possibility that you’ll live for 100+ years, so you’ve got to live like it. But there’s also the chance that you don’t have as much time as you thought you would. Tweak to your necessary levels and set your own financial goals. Living in the sweet spot between these two ideas is what I’m aiming for. Maybe you’ll do the same.