If you are an adult, I’m sure I don’t need to convince you about the need to manage your finances. You already understand why it’s essential, or you wouldn’t be reading this.
So, since you are already prepared to make a change financially, keep reading for the simple and practical financial rules you need to live by.
15 Practical Financial Rules You Need to Live By
Here are the financial rules to live by to set yourself up for a financially healthy future.
1. Spend less than you earn
This rule sounds simple, but it’s one of those things that are easier said than done.
However, since we already agreed that financial management is vital, it’s also one of those things you must learn to do because if you keep spending everything you make, or worse, more than you make, you’ll likely always live paycheck to paycheck.
The goal is to create a gap between your income and expenses, no matter how small. That extra is important to grow your savings and investments.
But if you have nothing else after you get paid or your income comes in, you’d never have enough to save for the rainy days, not to mention invest.
So, do an inventory of your expenses and cut down on small leaks, especially on impulse buys or subscriptions you don’t use. You’d be surprised how much money you lose on subscriptions you never use.
Besides that, you should deliberately cut down on some luxuries you cannot afford yet.
Just because you can pay for something doesn’t mean you can afford it. If buying something prevents you from saving or investing, then you can’t afford it.
So, learn to live below your means and give yourself the breathing room and control over your finances.
Also Read: How to Live Within Your Means
2. Always pay yourself first
When I first heard this advice, I thought it concerned only solopreneurs who sometimes struggle to differentiate between their personal finances and business income.
However, it actually applies to everyone who earns an income.
Before you pay bills or buy anything, take a portion of your income and save it. That’s also a way to pay yourself.
If you wait until the end of the month to do this or if you wait until you pay all of your bills, there’ll be barely anything left to save.
And if you know you’ll struggle to handle it yourself, automate it, so you don’t even have to think about it. Every month, once your salary is paid, it is automatically deducted from your savings account.
3. Build and maintain an emergency fund
Life happens, and most time, when we least expect it. And if you’re not prepared, you will be forced to borrow or dip into savings meant for other things.
That’s what an emergency fund is for.
Now, I know you’re hoping you won’t have emergencies, but that’s just life, and it never warns us. So, make sure to build an emergency fund for when, say, your car breaks down or you lose your job.
Also, don’t combine your emergency fund and your usual savings fund; the best way is to build them separately.
Aim for at least three to six months’ worth of expenses when building your fund, and keep it somewhere easy to access but not too tempting to touch.
Having that will give you peace of mind in case anything happens.
4. Avoid unnecessary debt
Not all debt is bad, but unnecessary debt will trap you in an endless cycle.
Honestly, my financial advice is to avoid debt as much as you can. But we all know some are necessary, like student loans.
However, you shouldn’t be taking loans to buy things that lose value fast, like clothes, gadgets, or luxury items. If you do that, you’ll only be paying more for something that’ll mean less tomorrow.
If you want a gadget, you can always save towards it separately or wait until you can afford it; it’s not a basic need, after all
And if you have debts, that’s the wrong time to stack up other debts. Focus on clearing what you owe. In fact, make it a matter of priority. If you need to cut down all forms of luxury to do it, please do.
Of course, that doesn’t mean you can’t splurge and take care of yourself occasionally, but make sure it is really occasional. When you’re done paying your debt, you can have the freedom to enjoy more luxury.
5. Pay off credit card debt in full every month
Credit cards can be helpful if you use them wisely, but they can also ruin your finances if you don’t. Because the interest rates pile up fast, and before you know it, you’re paying more in interest than the item itself costs.
So, make sure to use it wisely on only vital things. And ensure to pay the balance in full each month. And if you know you can’t keep up, if you often struggle to stay within budget, a credit card is not for you.
Use cash or a debit card until you’ve built better discipline.
6. Live on a realistic budget
Budgeting is one aspect of financial management that cannot be overemphasised, because it helps you see where your money goes and ensures your spending matches your goals.
Trust me, it is the best way to set your finances in order. The reason many find it challenging is that they fail to factor in all the expenses in the budget.
You must make sure your budget is realistic. That means you don’t have to cut out every pleasure in life just because you have a budget. Rather, include it in the budget.
This is because if you completely cut out pleasure, you’ll likely give up on budgeting, and you need a little incentive to keep going.
So, after budgeting for the necessities like savings, investment and bills, include fun money, and miscellaneous expenses as well.
Don’t leave anything out – you can even budget for gifts, but make sure you don’t exceed that each month.
Consider using the 50-30-20 rule for a start. The rule allocates 50% for needs, 30% for wants and 20% for savings. Fun money and gifts, for instance, fall under wants, but let’s not get ahead of ourselves; more on that later.
Of course, you can always adjust the percentages based on your unique circumstances. For instance, if you are in debt, you might want to reduce your wants or even your savings. What matters is that you are not spending randomly, but tracking it.
When you do that, you will make conscious choices instead of wondering where your salary disappears every month.
7. Save and invest consistently
This one goes without saying; no financial rule is complete without saving and investment. You need to save for short-term goals and invest for the future.
Luckily, contrary to what you might believe, you don’t need to have millions before you start investing. What matters is your consistency.
Even a few dollars set aside regularly grow over time through compound interest. And the earlier you start, the more your money grows for you. So, don’t wait for the perfect time to save or invest; there isn’t one.
Just start and keep going.
Also Read: Wise Reasons to Save Money for the Future
8. Know the difference between wants and needs
Learning to tell wants apart from needs is one of the smartest money skills you can develop.
At the most basic level, your needs are things like food, rent, and healthcare, while designer sneakers, weekend trips, and the newest phone fall into wants.
In fact, some wants can disguise themselves as needs. For instance, you need food, but you don’t need to eat out. You also need rent, but you don’t need to live in a house whose rent you can’t afford.
What I’m saying basically is that you have to be realistic with your needs as well. Eat what you can afford, live where you can afford and wear what you can afford.
Now, before you ask, yes, it’s okay to enjoy nice things once in a while, but only after your essentials and savings are covered.
When you get clear on what truly matters, you’ll stop feeling broke even when you earn more.
9. Set financial goals and track your progress
When money has no direction, it is easy to misuse it. So, decide what you want your money to do. Is it to buy a home, start a business, travel, or retire early? You must have a financial goal – something you’re working towards.
Once that’s clear, break it into smaller and realistic milestones, and start working towards your goal.
A goal helps because it gives you a destination; you know you are not just saving or investing, but it is to an end.
That will keep you motivated when you want to give up, especially when you can see your progress.
10. Build multiple streams of income
Relying on one source of income is risky, especially in this volatile economy. You are safer if you have multiple sources of income.
Even if you love your job, it’s always wise to have a backup. It can be through a side hustle, freelancing, or finding a passive income.
Investing is also a great way to diversify income, especially if you find one that can give you regular passive income.
Of course, you should also diversify your investment portfolio; don’t put all your eggs in one basket in case a particular one fails.
That said, having something coming in besides your usual salary gives you security, confidence and more room to build your wealth.
11. Protect your assets with insurance
No one likes thinking about insurance, but it’s necessary. It’s a wise investment that protects you from financial shocks that can wipe out your savings.
While you don’t have to get every insurance out there, consider health, life, and property insurance; they serve as a safety net for the life you’re working hard to build.
We all hope we never need it, and that’s why some people don’t bother with it, but you’ll be grateful it’s there when you do.
12. Keep your lifestyle in check as your income grows
Many of us fall into the temptation of spending more when our income increases. That’s when you start thinking of getting a new car, bigger apartment, or fancier dinners.
But if your expenses grow at the same pace as your income, you’re not actually progressing. You’re simply inflating your lifestyle, and it quietly kills your wealth.
Instead of upgrading everything, save or invest the extra. One of the best financial rules you can live by is to let your money grow faster than your taste.
Also Read: 10 Financial Habits To Break To Grow Your Wealth
13. Plan for retirement early
It might feel far away, but time is your greatest advantage when it comes to retirement. The earlier you start saving and investing towards it, the less pressure you’ll feel later.
Even if you can only set aside a small amount, do it consistently. It’s a great way of taking care of your future self. And one day, you’ll thank the younger you for starting early.
14. Avoid emotional spending
We’ve all done it: buying things to feel better after a rough day. But emotional spending only gives you temporary comfort while bringing you long-term regret.
Anytime you’re tempted, pause and ask yourself if it’s something you truly need or just a momentary distraction. You’ll be surprised how much money you save by practising a bit of self-awareness.
15. Keep learning about money and how it works
Money management isn’t something you learn once and forget. The world changes, markets evolve, and new opportunities come up.
So, if you want to properly manage your finances, you must keep reading, watching, and asking questions. Learn from people who manage money well and stay curious.
The more you understand how money works, the better you can make it work for you.
FAQs
1. What are the most important financial rules everyone should follow?
The most important rules include spending less than you earn, saving consistently, avoiding unnecessary debt, paying yourself first, and planning for the future through smart investments and budgeting.
2. How much of my income should I save every month?
A good starting point is to save at least 20% of your income. You can adjust this based on your financial goals, expenses, and lifestyle, but the key is to save something regularly, no matter how small.
3. How can I avoid living paycheck to paycheck?
Start by tracking your expenses, creating a realistic budget, and cutting back on unnecessary spending. Build an emergency fund, and look for ways to increase your income through side hustles or skill development.
4. What’s the best way to pay off debt?
Focus on paying off high-interest debts first while making minimum payments on others. This snowball method can help you stay motivated and organised as you pay your debt.
5. How much should I keep in my emergency fund?
Aim for at least three to six months’ worth of essential living expenses. If your job or income is unstable, consider saving a bit more to be safe.
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