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Money is a fundamental and integral part of our lives. The better we are at managing our money, the better able we are to reach our goals, the less we have to stress over and the more time and energy we can spend on the things that are most important to us.
It’s easy to feel out-of-control when it comes to money. Not all of us were blessed with a strong financial foundation growing up, and many of us are still struggling to figure out our finances today – if you’re reading this blog, then my guess is that you fall into one or both of those groups. The good news is that you can start taking control of your finances right now, today, by following some basic money rules. No matter your income or financial situation, these money rules always apply and will help get you from where you currently are to where you want to be.
Here are ten basic but life-changing money rules that you can start implementing right now.
1. Know your why
If you don’t know why you’re doing something, there’s a better than average chance that you’re going to do that thing terribly. If you want to reach your financial goals you need to know your why. Not your “because I want more money” why, or your “because debt sucks” why, but your deep down true why.
Your financial goals should always be based on your values. When your goals are based on your values, the answer to why you are [building an emergency fund/investing $300 a month/cutting out cable/taking your lunch to work everyday] is readily apparent. Our why is what gives us purpose. Purpose, in turn, is what drives us and compels us to action. You can think of your “why” as the internal motivation that keeps you going when external motivators fail.
Money itself is only a tool. Making your goals about money – whether it’s to have more or owe less – is shortsighted because in truth, what we actually want has nothing to do with money itself. What we truly want is what money can provide: the freedom to quit a job we hate; more time to spend with our family and friends; the ability to live in a better school district so that our children are given more options in life than we were; security as we age so we’re not reliant on others; [your why here].
Ask yourself: What is my longterm vision for myself and/or my family? What is my greatest life goal? What is it that I want my money to do – what do I want it to let me do? What kind of legacy do I want to leave behind?
2. Separate your wants from your needs
The distance between our needs and our wants is usually vast and wide. It would make managing our money a lot easier if needing to eat was fundamentally the same thing as going out to eat but clearly one is a necessity and the other is only a preference. We need to eat but we don’t need to eat at a restaurant. We need transportation but we don’t need to drive a brand new car.
If we can truly separate our wants from our needs then we can consistently make smarter financial decisions. You don’t have to live like a monk or eschew all creature comforts in order to be financially secure or reach financial freedom. You do, however, need to honestly assess your purchases and spending habits against your values and priorities. You can’t be trying to work toward your goals while also working against your goals and expect to make any net positive progress – like my husband is fond of saying, you can’t have bad breath and good breath at the same time.
Do what you can to narrow the gap between what you need, what is in alignment with your values and priorities, and what you spend your money on. The closer these are to one another, the more likely you are to reach your financial goals.
Ask yourself – is this purchase moving me closer to or further from my goals?
3. Track your spending
Like it or not, creating a budget and tracking your spending are two surefire ways to improve your finances. Even if you refuse to create any kind of spending plan, you need to be tracking where your money comes from and where it goes on a daily basis.
Yes, every single day is often you should be looking at your money. (Hint: using a free app like Mint or Personal Capital makes it super simple to see all of your accounts and transactions in one place.)
Tracking your spending is how you remain accountable to yourself. You can bury your head in the sand or you can take responsibility for your financial situation and begin to tackle it head-on. Nothing in your life will improve while you’re looking the other way.
Track your spending so that you have a clear and honest picture of both how you’re spending your money and what you’re spending it on. If those aren’t in alignment with your values and your goals, you’ll need to do some work to start changing your spending habits.
4. Eliminate and avoid consumer debt at all costs
Avoid accruing debt and get rid of any debts that you already have. Pronto. Outside of a mortgage and college tuition (to a point), if you have to finance something, you can’t afford it. Simple as that. If you buy something despite this fact, you’re sabotaging your current financial security and the financial security of your future self.
As long as you’re carrying debt, you’re paying money to owe money. That makes absolutely no financial sense. Do what you need to do in order to be debt-free. Cut your expenses. Side hustle. Don’t borrow money unless you can pay it off immediately.
Whatever you do, don’t sit around waiting on your future self to bail out your present self. Unless you change your financial habits, future you is going to continue making the same money mistakes as current you – while digging you a deeper hole. If you’re in debt, that raise you’re counting on won’t change your financial situation unless you also change your actions and money habits.
In order to become debt free and stay debt free you have to live below your means, which leads me to #5:
5. Live below your means
AKA: spend less that you earn.
Whether you earn four figures or seven, it’s incredibly easy to spend all of your income each month. In fact, thanks to the concept of credit, it’s alarmingly easy to spend more than all of it. You will never reach your financial goals if you don’t live below your means. Not within your mean – below. That’s the hard truth.
Living beneath your means requires spending less than you earn. The greater the difference between what you earn and what you spend, the more money you’ll have available to pay off debt, to save and/or to invest. Investing, whether in the stock market or real estate or elsewhere, is the way you build wealth.
Cutting expenses is important, but so is growing your income. If you can do both, reaching your goals becomes easier and can happen much more quickly.
Ask yourself – where can I cut costs this week? How can I earn another $100, $500, or more this month?
6. Pay yourself first
Saving money is simple but that doesn’t mean it’s always easy. While it’s possible that you literally can’t afford to save, more than likely you absolutely can, even when it seems impossible. That’s because for many of us, a lack of savings isn’t about a true lack of money but about the choices we make about our money. This is why it’s so important that you make the commitment to pay yourself first.
Paying yourself first means that you budget savings before anything else. Before you pay bills or buy groceries, you set aside money for savings.
The problem is that if we don’t commit to paying ourselves first, we often don’t pay ourselves at all. Even if you’re living paycheck-to-paycheck, paying yourself first should be a priority. That may sound counterintuitive but it works because when bills need to be paid, you’ll almost always find a way to meet your obligations. Most people aren’t motivated enough to work a second part-time job or cut out cable in order to fund a retirement account, but they most likely will be motivated to do both if their electricity or internet service is at risk of being shut off.
7. Save more than you think you can
There are plenty of sources that recommend saving anywhere between 5% and 15% of your income – that’s a great start but it isn’t enough. If you want to retire well and/or pursue financial freedom, you’ll need to increase your savings rate to 20, 30, 40% or more. If that sounds like a lot, try reframing it: for every day that you work, can you afford to save one hour of pay for yourself? Not for your cell phone bill or your mortgage payment, but for your financial goals and your future? How about 2 hours?
What does it say about your priorities if you can’t or simply don’t? Is Hulu or Starbucks or that new car truly worth more to you than your financial security?
We may live in the land of #YOLO today, but 70 year old you absolutely, positively, in no uncertain terms, does not. 70 year old you needs present you to stop wasting time and start planning for your future like you mean it. The money you save needs to do more than just provide for short-term goals. You need to save until it hurts a little bit (or a lot) because you need to do a lot with your money, including:
- Build an emergency fund – $1000 will cover most visits from Murphy.
- Put away 3-6 months worth of expenses – best kept in a high-yield savings account or similar, in case of job loss, medical issues, etc.
- Fund your retirement – your 401K or IRA or both. At minimum, enough to get an employer match, but preferably, maxing out one or both.
- Pay for college (as applicable)
- Create wealth – through other forms of investments such as taxable brokerage accounts or real estate.
8. Automate your finances
Do numbers 6 & 7 automatically.
Set up automatic bank transfers so that once your paycheck hits your bank account, a portion of it automatically goes into a separate high yield savings or money market account. Set up an elective deferral so that you’re automatically having 401k contributions deducted from your pay.
It’s been shown time and again that it’s easier to part with money that we never see in the first place – you’re unlikely to miss what was never available to spend. Automating your finances is a brilliant and simple way to get out of your own way. More brilliant is the fact that it’s truly set it and forget it – once your system is in place, you don’t have to think about it.
(By the way, if you haven’t read The Automatic Millionaire yet, I highly recommend you pick up a copy.)
9. Keep moving forward
Like any other struggle in life, there is a tendency to complain about and get bogged down by our money woes. Keeping a growth mindset and a positive outlook will go a long way toward helping you feel good about your financial situation, even if it isn’t exactly what you want it to be.
You can feel ashamed or frustrated by your debt, but there isn’t any benefit derived from feeling badly about your money or your past money mistakes. Focus instead on what you can change – your mindset and your behaviors. Mistakes are fine. In fact, mistakes are good as long as you fall forward.
Stumble, fall, pick yourself up, and keep going. No one follows a straight line to success, no matter how it may appear from the outside looking in; it’s okay to take the long way around as long as you keep moving forward.
10. Choose your comparison yardstick wisely
Keeping up with Joneses has always been and will always be a terrible idea. You will never be satisfied with your life if you’re striving to emulate the people around you instead of figuring out what matters to you. Displays of monetary wealth are just that – displays. Ignore the media and anyone else who tries to tell you how your life should look. If your yardstick for success is based on what other people have and what other people do, you’ll be trapped in a perpetual cycle of never having enough and always needing to impress others. You might as well give yourself over to a lifetime of dissatisfaction and discontent right here and now.
Everything is relative. You may not have as much as some, but you definitely have more than others. In the long run, does any of that make any difference whatsoever?
No. Emphatically no.
You aren’t the proverbial Joneses so don’t compare yourself to them. If you want to make comparisons, compare your past self to your current self so you can celebrate your progress and achievements. Your life is your own and is best lived for you. That means you get to choose your own measures of success. Choosing the Joneses’ measure of success or your neighbor’s or your coworker’s will eventually suck the life out of you. Their priorities aren’t yours.
Instead, choose your comparison yardstick wisely. Let it be the positive impact you make on others. The strength of your relationships. The satisfaction you feel from knowing your purpose and your why.
In the end, life is short. Don’t waste it trying to chase someone else’s dreams or meet someone else’s standards. You do you.
Questions? Advice to share? Let me know in the comments!