Some money rules that can have a great impact on your finances and on your future, if followed properly, are:-
1] Never take Loans for Depreciating Assets –
Consider before taking a loan or borrowing money for investing in a depreciating asset like car or mobile phone, other electronics items. Think twice before you choose this option. Avoid it further if it’s not an urgent need.
Such investments never add any value but only take away a huge chunk of your money. Borrowing money to pay for a depreciating asset is a sin of personal finance.
Always check does the debt have a direct and measurable positive impact on your future income? If the answer is yes, the debt may be worthwhile after careful assessment of risks. A crop loan taken while sowing looks up to a possible good harvest; an educational loan enables seeking a qualification that can offer better earnings, a home loan can reduce your current rental expenses and makes your emotionally more stable. These types of loans have a positive income effect and carry important social benefits.
2] Live below Your Means –
Living below your means requires you to pick and choose. You can have a life without draining your wallet, all it takes is some prioritizing. If you want to get on the quickest path to reaching your goals, you have to start living below your means. The best way to do that is to keep your priorities in line. Spending less than you earn leaves you with a surplus, and that surplus is the foundation on which long-term wealth is built.
Here is how you can do it –
- Create a Financial Plan to know your goals and start saving first for them
- Create a practical monthly budget and stick to it. Keep small rewards for small success
- Avoid using Credit card. It is tough to track your expenses with it.
- Increase your income. Try freelancing, blogging, online jobs to earn extra income.
It’s not about the amount of money you make; it’s about adjusting your habits and lifestyle in order to improve your life both now and in the future. Once you start making small changes to your spending routine or earnings, you will realize how big of an impact it can have on every aspect of your life.
3] Build your Emergency Fund –
The best way to save for unexpected financial shocks is to have an emergency fund. This is money you want to keep somewhere you can access quickly and easily.An emergency fund is a bigger, longer-term savings fund.
The earlier you start saving, the more time you have to build up the funds to cover an emergency and reach your goals. If you leave yourself with no cushion, only one unexpected expense can send you into debt. Emergency funds help us cope with financial challenges. These challenges may result from job loss, medical emergencies, or other unforeseen circumstances.
The size of a healthy emergency fund may vary based on personal debt levels and spending habits. Generally, one should save enough money to cover between three and six months worth of living expenses. Your emergency fund can shield you from relying on credit cards to fill in financial gaps.
4] Pay Yourself First or Savings First –
If there’s one primary lifestyle quality that marks those who have built wealth over time, this is it. Paying yourself first is a simple rule which can do wonders for your Financial Health. It simply means, first save and then spend. Treat savings like an electricity bill which needs to go without fail. Why? Because this approach increases the likelihood that you’ll actually save a substantial amount. It converts saving money from a “desire” into a necessity. Your retirement and your emergency fund savings become a bill that MUST be paid every month.
Automate your savings. Otherwise, you’ll get to the end of the month and realize you’ve spent more than you intended. So using your budget, figure out how much you can save each month. And then have the money directly deposited into your savings account and/or other retirement savings accounts.
SIPs are an excellent way to achieve this. Calculate the amount you want to save every month and create SIP of that amount in different Mutual Funds. Make sure your SIP hits immediately after your salary gets credited.