40 simple rules for personal finance management
Some time ago, I was asked to give an hour-long presentation where I talked about my core principles of personal finance. I decided to make a presentation where each slide was available for a minute with one simple rule on each slide, giving me a minute to discuss that rule. So I came up with 40 short and simple rules for personal finance.
I’d love to share a presentation with you, but I’m not sure about the copyright of some of the images used. Instead, I’m just going to present the 40 rules, as well as my quick personal thoughts on each rule.
Of course, not everyone will be able to follow every rule all the time. However, the more you follow these “rules", the better your financial situation will become.
#1 – Spend less than you earn
This rule can be considered the most important rule of personal finance. You must spend less than you earn and save that difference for the future so that you can still survive and thrive when you are older and don’t have the opportunity and energy you have today. Without following this rule, you simply cannot achieve great financial success without a share of luck, but you should never rely on your luck in your future plans.
#2 – Keep it as simple as possible
The more credit cards you have, the more chances you have for identity theft and the more likely you are to miss a payment. The more investment accounts you have, the less attention you can pay to each of them and the more likely you are to miss something really important. The more accounts and investments you have, the more time and energy you will have to spend to stay on top, and the more likely you are to make a mistake.
Simplify everything. Don’t hold too many cards. Invest wisely. Consolidate your debts.
#3 – Never let your “future self” take care of your current situation
Have you ever told yourself that it’s OK to make a bad spending decision now because you’ll make more money in the future? This is a giant mistake that you will almost always regret for a very long time. Sure, your future self might have more income, but it’s also likely that your future self might have less income, and you’ll be in a really bad situation. Even if you are doing well in the future, there will probably be other big expenses that you will have to deal with at that time, such as buying a house.
#4 – Always save up for a rainy day
If you don’t have an emergency account somewhere in a savings account at your local bank, this should be your number one priority. Money is one of the main options for solving all the problems that life throws at you. Unlike a loan, if you have a savings account, your funds will always be available and you won’t have to pay extra interest. You can start opening an account by setting up an automatic weekly or monthly transfer of funds from your checking account to your savings, and then leave the savings alone until you need them in an emergency.
#5 – Prioritize the Right Ways to Pay Off Your Debts or Loans
Always prioritize the return of funds at a high interest rate. Create a simple debt repayment plan by spreading your debts by interest rate, and then try to make a double payment (or more) on any debt with the highest interest rate. Make this double payment every month, then when that debt disappears, add the total amount of this payment to the payment you make on the next debt on the list. Keep repeating until you get rid of the payments.
#6 – Focus on saving for retirement
One of the main financial rules should never be forgotten. In the Republic of Kazakhstan, pension contributions are mandatory for all employed citizens of the country, but most employers try to avoid unnecessary expenses in order to save money and register their non-employees informally, indicating low wages in the white bookkeeping and pay the rest through the "black" cash desk. Sometimes employees themselves refuse mandatory pension payments in order to receive a larger amount "on hand" than officially. Paying a few percent of your salary may seem like a pain, but it’s actually a lot less of a burden than you’d expect, which adds to the pleasure of knowing you’re getting a pension.
#7 – Buy insurance to keep your family and kids safe.
Don’t let the insurance seller fool you. You don’t need a lot of life insurance if you don’t have dependents (that is, people other than you whose well-being is directly dependent on your income). If you have dependents, your best bet is to get a life insurance policy that will pay out enough money to take care of your dependents if you leave early. All these other insurance plans offer things you don’t need at all and charge us a lot of money for it.
#8 – Keep your budget right
A budget can be a useful tool for keeping track of your expenses, but the most valuable part of budgeting is actually the process of getting the budget right. How to do it right? You build a budget based on actual spending over the previous few months.
How much do you actually spend a month on food? Entertainment? Communal expenses? Your car? Get real numbers. Review your bank and credit card statements and find out. This process will easily show you the categories in which you overspend, while simply keeping a checkbox budget will not show you anything.
#9 – Be mindful of your bills
At the present time, you need to be very attentive to the bills you are billed. The most obvious example is subscriptions to various services on the phone or in applications and websites. If you use unnecessary services on your phone that charge you monthly fees, cancel your subscription. The same applies to all "hidden" payments. It is better to be attentive once again than to constantly pay for services that you do not even use.
#10 – Know how much money you actually make per hour you put into work
Figure out how much you earned last year after taxes, then subtract from that any travel expenses, professional clothing, work-related meals, and other out-of-pocket expenses. Then find out how many hours you worked (including at home), as well as the number of hours you traveled to work and attended other business meetings. Divide your income after expenses by the total number of hours worked to get your real hourly wage. This is how much you are actually selling an hour of your time for.
#11 – Use the 10 point score as a point of comparison for everything you buy
I believe that the true hourly wage is an incredibly valuable number. I use my number as a comparison for almost everything I buy. Let’s say my "true salary" is $10 an hour. If I’m looking at buying a $20 CD, I ask myself if owning this is worth two hours of my life when I can just rent it. If I’m thinking about buying a $1,000 TV, I ask myself if 100 hours of my life is worth having this model if I could have a smaller TV instead. This almost always prompts me to ask what I really spend my life energy on.
#12 – Don’t fall for "professional" financial advisors
The financial media constantly publishes articles in which various "experts" advertise "hot" stocks and "profitable" investments. I ignore all of this.
First, these people often have a big conflict of interest. Second, the entries and exits of various companies and industries are too complex for an outside equity analyst to know well, especially given how much information is hidden from them. Third, if their predictions are actually accurate, the company they work for will still act on that information, meaning you will get (at best) leftover notes. Just ignore it all.
#13 – Ignore “professional” economic forecasts too
In much the same way, economic forecasts should not be given much weight. Often these predictions are completely wrong, and even if they are correct, they are rarely good indicators of what you should be doing with your professional life or your money. Don’t base your personal financial decisions on what is predicted to happen in the future. If you are nervous about the future, you should be more conservative about the investments you make from now on; it is the only change you should ever make in the face of economic forecasts. However, this has more to do with your personal risk tolerance than any economic forecast.
#14 – Set big goals and keep reminding yourself of them
What do you want for your future? This is a tough question, but it can provide incredible motivation and direction for what you do in your daily life, encouraging you to take better steps.
Do you want a secure early retirement? Do you want to start a business? Do you want to travel around the world? Whatever your goal is, keep that in mind at all times. Fill your life with reminders of your big goal so you can make the best choices in line with that goal when it comes to all those little decisions in your life.
#15 – It’s better to rent an apartment if the cost of your house is significantly higher than rent
Each of us dreams of our own home, but if this requires large monthly expenses, far exceeding rent, then it is probably better for you to wait with the acquisition. It is better to rent a house and save money for a down payment than to move into a house where your expenses – mortgage, property tax, maintenance, utilities and more, in total far exceed the cost of renting a house.
If, after all, you decide to buy a home, then it’s better to choose the right offer for yourself so as not to be trapped under the weight of a giant monthly mortgage payment.
#16 – Buy cars based on reliability and fuel efficiency
These are the two factors you should think about first when it comes to buying a car because they will make a huge difference in your finances. A reliable and economical car will keep your fuel bills and your repair bills low for as long as you own it.
#17 – Obey traffic rules and speed limits
This rule helps you avoid unnecessary expenses for paying fines for non-compliance with traffic rules, but also saves fuel consumption while observing the speed limit. Most cars are designed to have good fuel efficiency at standard speed limits, but their fuel efficiency drops off rapidly as speeds increase, reducing fuel efficiency by up to 1% for every 1.5 km per hour above 80 km/h.
#18 – Build strong relationships with your neighbors
A neighbor is a person from whom you can borrow something instead of going to the store. A neighbor is a person who can look after your property while you are away. A neighbor is a person who can turn an ordinary dinner into a laid-back social celebration at no extra cost. A neighbor can be an endless source of helpful local advice. Get to know your neighbors and build relationships with them. Offer help to your neighbors whenever possible, and sometimes turn to them for help. You will build relationships that will benefit you tremendously.
#19 – Teach your kids about personal finance from day one and set a good example
Talk to your children about money from a very early age. Explain to them the virtues of spending less than you earn and staying out of debt. Moreover, be an example to your children. Don’t just talk about it, do it. Show them how it’s done in your daily activities. If you talk about spending less than you earn and then do it in your daily life, the lessons will be much more helpful.
#20 – Invest some of your money in stocks – and hold on, no matter what happens
Don’t know how to invest your money? If your goal is not short-term – less than 10 years – you can invest some of your money in stocks, because in the long run they tend to make very good returns. The problem with stocks is that they tend to be very volatile, with many short-term spikes and drops in value. Hold on and be patient, or better yet, just don’t look at the value of your investment if you believe it will last.
#21 – Make a Meal Plan at the Beginning of Every Week
One big mistake busy people make is not having a clear plan for where to eat during the week, which forces them to improvise. This kind of improvisation, when there are no plans for dinner when you leave work, or no plans for lunch during the working day, usually ends up with additional expenses in the form of restaurant meals, takeaways and convenience foods.
A little time spent planning meals for the week can drastically cut down on your food costs because you’ll know what you have for each meal and can easily handle the necessary preparation.
#22 – Never go shopping without a shopping list
If you’ve ever been to a store without a shopping list, then you’ve spent more money than required. If you intend to buy some things but don’t have a clear plan for it, you will be consumed by impulsive purchases that will drain your wallet. The shopping list allows you to always be in focus when you are in the store, which greatly reduces the number of such impulsive purchases.
#23 – Ignore Ads
Try to cut advertising out of your life as much as possible. It’s hard to completely eliminate advertising in modern life, but the less exposure you have to it, the less temptation you’ll have to spend money on products you don’t need.
#24 – Don’t worry about what others think
Don’t choose a car to impress other people. Don’t choose clothes to impress other people. Don’t choose gadgets to impress other people. Why? Because it won’t impress them. The only thing that impresses anyone about you is you. It’s about how you conduct yourself, what ideas you come up with, and how you listen to and respond to others. Don’t spend a dime on other things.
#25 – Don’t worry about how other people spend their money
If you see someone driving an expensive car, don’t use it as an excuse to get jealous or tell yourself that you need an expensive car too. Just because other people prefer to buy things or eat at certain restaurants doesn’t mean you should. Make choices and spend money on things that benefit what matters to you, not what other people care about.
#26 – Take the time to build good, strong, lasting relationships
A life filled with strong personal and professional relationships will serve you well in all aspects of your life for the rest of your life. The people in your life provide emotional, social, professional, spiritual, mental, and yes, financial support for just about anything you might want to do. Spend time and energy building strong relationships by helping others, listening to what they have to say, offering support, and connecting with the community.
#27 – Analyze your finances, your career, and your life once a week
It may seem too simple, but this action can lead to countless changes in life. Once a week, you should devote at least an hour of your time reviewing the past week, as well as thinking ahead of the upcoming week and your long-term goals.
Ask yourself questions such as, am I doing things that are in line with these goals? What have I done to achieve my goals in the past week? What did I do wrong and why did I do it? How can I avoid repeating mistakes in the future? Am I satisfied with my big goals? Do these things every week and you will feel positive changes in your daily life.
#28 – Never Gamble
Lottery organizations, casinos and bookmakers are commercial enterprises, which means that their main goal is to make money and you will never win in the long run in competition with these organizations. If you enjoy playing games, find other distractions.
#29 – Make good use of your free time
Do you spend your free time in a way that makes you a better person? Do you develop skills in your free time? There are many ways to have fun while developing skills or growing as a person, from volunteering or attending religious services to taking continuing education classes or joining a professional or civic organization.
#30 – Start a side business doing what you’ve always wanted to do
Almost all of us have a big dream inside. Whatever your dream is, find a way to fill some of your free time with it. Is there a way to touch what you love so much and make money at the same time? Could you make a Youtube video about it, or create a website, or write a Kindle book? Chances are you could – you just have to make that choice.
#31 – Watch less TV
The average person watches five hours of television a day. If you take only half that time and apply it to other vital activities, you will not only create a better life for yourself—perhaps one in which your earning potential will increase significantly—but you will also feel better and have fewer material desires.
Don’t give up on TV programs if you like them, but give up mindless "channel surfing" and find something more interesting for yourself. You will probably spend less energy and most likely improve your earnings.
#32 – Use the 10 Second Rule
Whenever you feel like splurging on something cheap, just hold that item in your hand for 10 seconds and honestly ask yourself if you need it or not. Actively try to come up with reasons why you shouldn’t buy this item. Will it really help you achieve your goals? Can you extract enough value from it to make it worth it? Usually, in just 10 seconds, you will be able to decide that you really do not need this item, and if the test was passed, do not hesitate to buy this item!
#33 – Use the 30 day rule
What about more expensive items? For more expensive items, you can draw the line between "cheap" and "expensive" anywhere you like, just wait 30 days after your first major impulse before buying an expensive item, as long as it’s not an essential or urgent need. Use this time to do a little research and make sure you really want or will use the item, and also give it time to just sit back and see if the desire fades. You will find that most of the time you will not need this item after thirty days.
#34 – Give up all bad habits
The use of cigarettes, alcohol and everything that is not only harmful to our body, but also damages our budget should be replaced with the right things. For example, the same outdoor sports do not require any investment, but in return you get a big plus for your health and morale.
#35 – Use LED bulbs
LED light bulbs have become an almost imperceptible replacement for conventional incandescent bulbs. The only difference? They save about 20% more energy and last 20 times longer. Adding up all the costs of an incandescent lamp versus an LED lamp, you will save over $100 over the lifetime of an LED lamp compared to incandescent lamps.
#36 – If you have a problem, try to solve it yourself
When your toilet has problems or your faucet won’t stop dripping, it can be tempting to call in a repairman to have him or her just fix the problem. Before you do this, try to solve the problem yourself. See how to do it online, borrow some tools from a friend and see what you can do. You may just find that you can fix the problem yourself, saving some money and building confidence for future repairs. In the worst case, you still need to call a repairman.
#37 – Don’t forget to maintain your car
It’s easy to forget about regular car maintenance. After all, the car starts every morning and you hardly have to think about it. The problem is that neglecting maintenance for a long time will wear out your car and lead to serious problems much sooner than necessary.
Your car has a maintenance schedule in the owner’s manual that you can follow easily – it tells you what maintenance is needed with what mileage, making it easy to schedule appointments or, better yet, do it yourself.
#38 – Use public transportation
Public transport can be an inexpensive way to get to work, especially if you buy a long-term pass. Many people miss out on this because of the "freedom" of driving, but at the same time, they rarely do much on their commute other than driving to and from work. If this describes you, try using public transport for a while. This is often faster during rush hour and cheaper than gas, oil, and other car maintenance costs. And if you find that you can do without a car, you can sell it and get rid of most of the extra expenses.
If you’re in a long-term relationship, being completely open with your partner about your dreams as well as your mistakes is an incredibly powerful way to keep your focus and keep making the right decisions in life.
Spend some time, at least once a week, talking with your partner about your big life goals, as well as any difficulties and mistakes you face. Encourage your partner to do the same and keep any negative emotions under control. Instead, encourage each other to improve and do better, and keep that encouragement going throughout the week. This makes the world different in all aspects of life.
#40 – Remember that "things" will never make you happy
Happiness comes from within. All the things in the world won’t make you happy, but if you’re happy inside, you don’t need anything to make you happy. Never, ever settle for the idea that owning something will make you happier than you are now, because that won’t happen. The only way money can help is to reduce stress and ultimately improve your chances in life by increasing financial security – and you can only achieve this through smart means.
These rules are not hard and fast ultimatums meant to rule your life, but are small tools that you can use to improve your financial, professional and personal level. Feel free to choose among them and find the ones that will be useful to you, as each of them can improve your situation. If you can, try to apply them in your life, because the more positive directions you have, the faster your whole life will change (in a good way).