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20 Rules of Personal Finance

https://awealthofcommonsense.com/2016/12/20-rules-of-personal-finance/

awealthofcommonsense.com

20 Rules of Personal Finance
Meb Faber asked a bunch of us bloggers to give him our top 3-5 most read blog posts of the year. I looked back at my trusty Google Analytics for the first time in a while and discovered that two of my

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Salary is not the same as savings

Having a high salary does not automatically make you rich; having a low salary does not automatically make you poor.

Your net worth is more important than how much money you make. It’s amazing how many people don’t realize this simple truth.  All that matters is how much you save out of your salary.

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Saving is more important than investing

Pay yourself first is such simple advice, but so few people do this. 

The best investment decision you can make is setting a high savings rate because it gives you a huge margin of safety in life.

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Live below your means...

Live below your means...
....not within your means. 

The only way to get ahead financially is to stay behind your own earnings power.

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Credit cards

Carrying credit card debt is a great way to negatively compound your net worth.  But credit itself is important.

Likely the biggest expense over your lifetime will be interest costs on your mortgage, car loans, student loans, etc. Having a solid credit score can save you tens of thousands of dollars by lowering your borrowing costs. So use credit cards, but always pay off the balance each month.

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Understand your spending habits

If you want to understand your priorities  gain control of your finances, look at where you spend money each month.

The goal is to spend money on things that are important to you but cut back everywhere else. And if you pay yourself first you don’t have to worry about budgeting, you just spend whatever’s left over.

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Build up that savings account

Build up that savings account
You have to have liquid assets to take care of things when life inevitably gets in the way.

Most of the time these “emergencies” are things you should plan on happening periodically. 

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Cover your insurable needs

This is a huge personal finance margin of safety item. Just remember that insurance is about protecting wealth, not building it.

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Know where you stand

Everyone should have a back-of-the-envelope idea about where their net worth (assets – liabilities) stands.

 Before knowing where you want to go you have to know where you are.

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Taxes matter

Taxes matter

Everyone should try to do their own taxes at least once just to understand how it all works. 

It can be maddeningly complicated, but it can help you save money over time if you know where to look. Take advantage of as many tax breaks as you can and always understand your personal tax situation.

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Make more money

Saving and/or cutting back is a great way to get ahead, but it’s an incomplete strategy if you’re not trying to earn more by enhancing your career. 

Too many people are stuck in the mindset that there’s nothing they can do to get a better job, take on more responsibilities or earn a higher salary. That’s nonsense.

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Think about financial independence

...instead of thinking about retirement. The goal shouldn’t be about making it to a certain age so you can ride off into the sunset, but rather getting to the point where you don’t have to worry about money anymore.

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SIMILAR ARTICLES & IDEAS:

Keep everything as simple as possible

The more credit cards you have, the more chances you have for identity theft and the more chances you have to miss a payment. The more investment accounts you have, the less attention you can give ...

Don’t ever let your “future self”...

...take care of your current situation.

Your future self might have more income, but it’s also fairly likely that your future self might have less income and you’ll find yourself in a really bad situation. 

Even if your future self is doing well, there are probably going to be other big expenses that you’ll want to deal with at that time, like buying a house.

Focus on...

  • Building an emergency fund: set up an automatic weekly or monthly transfer from your checking account to your savings, then leave the savings alone until an emergency appears.
  • Eliminating high-interest debt: Set up a simple debt repayment plan by organizing your debts by interest rate, then attempt to make a double payment on whatever debt has the highest interest rate.
  • Saving for retirement: It will actually end up being a much smaller burden than you expect,  lifted up by the pleasure of knowing that you’re securing your retirement.

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Try making a budget

  • Create a full inventory of expenses in front of you: Categorize them into fixed and variable; urgent and non-urgent; necessities and luxury; avoidable and unavoidable.
  • You can c...

Financial planning

 ...is the process which provides you a framework for achieving your life goals in a systematic and planned way by avoiding shocks and surprises.

Maintain a personal balance sheet

It’s a statement wherein you can jot down your assets and liabilities.

  • Pull together your bank statements and other proofs of the liabilities
  • List down your assets like the bank balance, all investments, home value, and value of other assets.
  • Take a sum of all the assets to arrive at the total value of your assets.
  • List down your liabilities the (car loan, home loan, credit card balances etc.)
  • The sum of all the liabilities will show the value of the money you owe.
  • When you subtract the value of liabilities from assets, you get your Net Worth.

3 Financial Basics

  1. Create a Financial Calendar: prevent yourself from forgetting quarterly tax payments and to get credit reports.
  2. Check Your Interest Rate: Pay off loans, open saving accou...

Budgeting Like a Pro

  • Consider an All-Cash Diet, as limiting yourself to physical currency combats overspending.
  • Set aside 1 minute a day to check on your financial transactions, to identify problems, track goal progress and set your spending tone.
  • Allocate at least 20% of your income to financial priorities like emergency funds, debts and retirement fund.
  • Budget about 30% of your income for nonbasic spendings, like entertainment. Abiding by the 30% rule, you can save and splurge at the same time.

How to Get Money Motivated

  • Draft a Financial Vision Board, it motivates and helps you to stay on track with your financial goals.
  • Set specific financial goals stating the reason, the way, numbers and dates.
  • Adopt a spending mantra, a phrase that serves as a rule of thumb for how you spend.
  • Love yourself. Taking control of your finances is part of that.
  • Make bite-size money goals. Make the bigger ones but also small step goals to get there.
  • Don’t be a financial fatalist, and switch to more positive mantras.
  • Get your finances and body in shape. The discipline associated with regular exercising translates to managing your money well.
  • Appreciate what you have now, instead of being a consumerist.
  • Get a Money Buddy. Studies indicate people pick up good habits from friends with similar traits.