In today’s unstable economic climate, the financial fears can overwhelm us quickly. If it feels like the bills are stacking up and it seems like there’s no end in sight, take a breath and cheer up! There is a way to address fears of everything going awry: basic money rules.
Taking steps to make a clear financial plan does wonders for bringing back a sense of control over your money. Here are a few simple rules to live by — they’re not all easy to enact, but they are time-tested and guaranteed to work. May they add years to your life and zeros to your bank account.
Money Rule #1 Get Out of Debt and Stay That Way
Borrowing money is such a normal part of day-to-day life today, that living a debt-free life seems like an idea out of a fairytale. Mortgage. Credit cards. Car loans. Payday loans. Cash advances. There are innumerable ways to access money — and in some cases accessing money is too easy, allowing us to stretch beyond our means.
In a “buy it now” world, it’s not a small task to learn to say no. But living within your means and getting out of high-interest unsecured debt is the single-most-important way to bring your financial life back into balance. Look at it this way: for every dollar we bring in today and send right back out to the bank or the creditor, we lose out on a dollar of opportunity that we could put to work for us, to earn interest and build wealth for the future.
If you already have a mountain (or even just a molehill) of debt, don’t fret. Worrying about debt makes you want to put your head in the sand and that is not an effective method for coping! Make a plan of attack, whether it’s using the snowball approach (paying off smallest debt first) or looking into a debt consolidation loan (where you borrow the same amount you owe in high-interest credit card debt at a more favorable rate). Experts are at the ready waiting to talk to you — no obligation!
Money Rule #2 Set a Budget and Stick to it
Creating a budget is a scary process, and it can be painful to see the fact that we are holding ourselves back with our daily coffee runs and eating out for lunch when working. But if you can commit to a budget, and stick it with for just a couple of months, the benefits greatly outweigh the minimal work needed to put in.
A change in how you think about budgeting is key, if you aren’t already in love with how budgeting gives you a reliable view of what and where you’re spending. Budgets don’t tell you “no” — you make the budget! Budgets let you know when you can say “Yes!” Once you’ve taken care of your monthly necessities, then you get to decide if your disposable cash goes to the latest sneaker drop or to a college fund. Once you know you’ve covered your bills and some money set aside for savings and an emergency fund, you are in charge. (But don’t pull out those credit cards! Let your indulgences fit into that monthly budget.)
Money Rule #3 Spend Less Than You Earn
Your shiny new budget will show you where your money is going, and help you move it in better directions. Once you have this vital knowledge, make sure that you are changing your spending behaviors, too. If you get all this great information about your spending habits and then do nothing to change your behaviors, then the cycle of financial insecurity will continue. At it’s very simplest, your budget will help you to see what you absolutely must spend each month to cover all the basics (mortgage/rent, commuting expenses, utilities, food). From there you can see EXACTLY what you have left over to spend, or to save. (We are going to put in a vote for saving — you should set aside a consistent amount every month. Future You will thank Past You when the next little emergency comes up and you have the dough to pay for it.)
Spending less than you earn can start to feel addictive, when you watch numbers start adding up in your savings account. And then you have money to invest, and that’s when things get really good, when you’re committing to long-term compound interest. That’s called “growth of capital,” and trust us, it feels great.
How do you get there? Spend less than you make, get serious about savings, and when you have an emergency fund established you can turn your attention toward investing. This is how you build wealth, and financial security, for yourself and your loved ones for the future.
Money Rule #4 Share Your Financial Goals with Friends
Involving your friends and family in your financial planning provides two things: accountability and support. Everyone needs cheerleaders for the long slog of building wealth. We need help to stay motivated and focused on our goals and to avoid the out-of-budget, out-of-mind spending. So instead of thinking of how you spend your money as a secret to keep from your significant other or your friends, because you don’t want anyone to judge you, flip the script. Tell people what you are trying to achieve — paying down debt, saving for the future, setting aside funds to start your own business — and ask them to root for you and keep you accountable.
Money Rules #5 Invest in Your Future
Once you’ve cleared up your past debts and cleared up your current spending habits, you’ll be able to start building for your future. The simplest way to do this is to participate in your employer’s 401(k) or 403(b) plans or to open your tax-advantaged retirement and savings plan like a Roth IRA. These will help you build real wealth over time if you’re consistently contributing to these plans. And if your employers do any kind of matching contribution? You need to be sure you are getting that! It is free money. And tax-deferred free money at that!
By committing to new spending habits, clearing out old debts, and investing in the future, the financial fears and anxieties of the past will fall away, and feelings of confidence and hope will replace them. These are the 5 simple money rules that will help you love your life.