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The 10 Important Rules of Personal Finance
By: Stacy Yu
Too often, people own the bigger house or the more expensive car in hopes of impressing others. Unfortunately, worrying too much about what others may think about how you spend your money often causes many families unnecessary financial distress. Financial security is one of the most important things you can do for yourself and your family, and with discipline and planning, healthy finances are achievable for anybody.
Here are 10 of the most important rules of personal finance for a financially secure future.
Spend Less than You Earn
It sounds simple. However, with so many wonderful things out there available to us, overspending can happen more easily than you think. Housing payments, car payments, rising food costs and medical bills can quickly add up and put you over your monthly spend. Create a monthly budget, and stick to it. Emergency expenses are bound to happen, so plan for it. Doing so increases your chances of having better control over your cash flow.
Prioritize & Eliminate Excess Expenses
Reducing how much money you spend does not mean reducing your quality of life. Prioritize your expenses. Focus your spending on only the things that mean the most to you and eliminate those that are not high on your priority list. Not only will you save money, but you may not even miss the items that were cut out.
Make Your Money Work for You
Saving money is extremely important. However, with the amount that is saved, there is also an opportunity for growth. Make your money work for you. Using a portion of your funds and invest in things that can further improve your finances, such as profitable real estate, a side gig, or education. With the right investments, you will be left in a stronger financial future.
Eliminate High Interest Debt
Interest is the money paid to lenders for the use of their money. When applying for loans or choosing a credit card, look for the option with the lowest interest rate. Doing so will minimize the lenders fees, and keep more money in your pocket.
Purchase Housing You Can Afford
When buying a house, it's best to not exceed 2.5 years' worth of your income. By staying within that limit, mortgage payments, property tax, and general upkeep expenses should be manageable without leaving you house poor. Anything beyond that amount could be devastating to your finances.
Maximize the Match on Your 401(K)
It's never too early to start saving towards retirement. Many employers provide matches to employee 401(k) contributions as part of their benefits package. Calculate the exact amount you need to contribute to maximize the match without exceeding the IRS 401(k) contribution limits to ensure that you are making the most out of your 401(k).
Keep an Emergency Fund
In the event of an emergency, keep an emergency fund. Six months of income is typically the recommended amount to get you through some rough patches. However, if that amount is not possible, any amount saved will be better than not saving at all.
Purchase Life Insurance
Life Insurance is the best way to protect your family in the event of an untimely demise. When selecting life insurance, try to purchase at least five times your gross salary in insurance. This will provide family members with enough money to handle the day-to-day expenses while adjusting to their new financial situation.
Always try to Negotiate
Most are already aware that when it comes to real estate, vehicles, and salaries, negotiating a fair price is part of the purchasing process. However, negotiating can also be applied to almost any purchase or payment. For items like furniture, jewelry, volume clothing purchases, bulk food items, and even automotive repairs, discounts may be available- as long as the purchaser asks. Always ask the question. It may save you quite a bit of money.
Always make room to give back, either through monetary donations or time. Not only will you help an organization or person in need, but you may gain an additional perspective that you may find rewarding in unexpected ways, both on personal and financial levels.